Required information Exercise 7 21B Complete the accounting cycle using long term asset transactions (LO7 4, 7 7) Skip to question The following information applies to the questions displayed below On January 1, Year 1, the general ledger of a company includes the following account balances Accounts Debit Credit Cash $ 59,100 Accounts Receivable 25,800 Allowance for Uncollectible Accounts $ 2,600 Inventory 36,700 Notes Receivable (5 , due in 2 years) 16,800 Land 159,000 Accounts Payable 15,200 Common Stock 224,000 Retained Earnings 55,600 Totals $ 297,400 $ 297,400 During January Year 1, the following transactions occur January 1 Purchase equipment for $19,900 The company estimates a residual value of $1,900 and a five year service life January 4 Pay cash on accounts payable, $9,900 January 8 Purchase additional inventory on account, $86,900 January 15 Receive cash on accounts receivable, $22,400 January 19 Pay cash for salaries, $30,200 January 28 Pay cash for January utilities, $16,900 January 30 Sales for January total $224,000 All of these sales are on account The cost of the units sold is $117,000 Information for adjusting entries Depreciation on the equipment for the month of January is calculated using the straight line method The company estimates future uncollectible accounts The company determines $3,400 of accounts receivable on January 31 are past due, and 50 of these accounts are estimated to be uncollectible The remaining accounts receivable on January 31 are not past due, and 3 of these accounts are estimated to be uncollectible (Hint Use the January 31 accounts receivable balance calculated in the general ledger ) Accrued interest revenue on notes receivable for January Unpaid salaries at the end of January are $33,000 Accrued income taxes at the end of January are $9,400 Exercise 7 21B Part 7 7 Analyze how well the company manages its assets Requirement 1 a 1 Calculate the return on assets ratio for the month of January a 2 If the average return on assets for the industry in January is 2 , is the company more or less profitable than other companies in the same industry Would it be more profitable or less profitable Requirement 2 b 1 Calculate the profit margin for the month of January b 2 If the industry average profit margin is 4 , is the company more or less efficient at converting sales to profit than other companies in the same industry Would it be more efficient or less efficient Requirement 3 c 1 Calculate the asset turnover ratio for the month of January c 2 If the industry average asset turnover is 0 6 times per month, is the company more or less efficient at producing revenues with its assets than other companies in the same industry More efficient or less efficient

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Jul 08, 2024

Required information Exercise 7-21B Complete the accounting cycle using long-term asset transactions (LO7-4, 7-7) Skip to question [The following information applies to the questions displayed

Required information

Exercise 7-21B Complete the accounting cycle using long-term asset transactions (LO7-4, 7-7)

Skip to question

[The following information applies to the questions displayed below.] On January 1, Year 1, the general ledger of a company includes the following account balances:

Accounts	Debit		Credit
Cash	$	59,100
Accounts Receivable		25,800
Allowance for Uncollectible Accounts			$	2,600
Inventory		36,700
Notes Receivable (5%, due in 2 years)		16,800
Land		159,000
Accounts Payable				15,200
Common Stock				224,000
Retained Earnings				55,600
Totals	$	297,400	$	297,400

During January Year 1, the following transactions occur:

January	1	Purchase equipment for $19,900. The company estimates a residual value of $1,900 and a five-year service life.
January	4	Pay cash on accounts payable, $9,900.
January	8	Purchase additional inventory on account, $86,900.
January	15	Receive cash on accounts receivable, $22,400.
January	19	Pay cash for salaries, $30,200.
January	28	Pay cash for January utilities, $16,900.
January	30	Sales for January total $224,000. All of these sales are on account. The cost of the units sold is $117,000.

Information for adjusting entries:

Depreciation on the equipment for the month of January is calculated using the straight-line method.
The company estimates future uncollectible accounts. The company determines $3,400 of accounts receivable on January 31 are past due, and 50% of these accounts are estimated to be uncollectible. The remaining accounts receivable on January 31 are not past due, and 3% of these accounts are estimated to be uncollectible. (Hint: Use the January 31 accounts receivable balance calculated in the general ledger.)
Accrued interest revenue on notes receivable for January.
Unpaid salaries at the end of January are $33,000.
Accrued income taxes at the end of January are $9,400.

Exercise 7-21B Part 7

7. Analyze how well the company manages its assets:

Requirement 1:

a-1. Calculate the return on assets ratio for the month of January.

a-2. If the average return on assets for the industry in January is 2%, is the company more or less profitable than other companies in the same industry?

Would it be more profitable or less profitable?

Requirement 2: b-1. Calculate the profit margin for the month of January.

b-2. If the industry average profit margin is 4%, is the company more or less efficient at converting sales to profit than other companies in the same industry?

Would it be more efficient or less efficient?

Requirement 3: c-1. Calculate the asset turnover ratio for the month of January

c-2. If the industry average asset turnover is 0.6 times per month, is the company more or less efficient at producing revenues with its assets than other companies in the same industry?

More efficient or less efficient?