Required information Exercise 7-21B Complete the accounting cycle using long-term asset transactions (L07-4, 7-7) [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: Credit Debit $ 59,200 26,000 $ 2,700 Accounts Cash Accounts Receivable Allowance for Uncollectible Accounts Inventory Notes Receivable (5%, due in 2 years) Land Accounts Payable Common Stock Retained Earnings Totals 36,800 18,000 160,000 15,300 225,000 57,000 $300,000 $ 300,000 During January Year 1, the following transactions occur: January 1 Purchase equipment for $20,000. The company estimates a residual value of $2,000 and a four-year service life. January 4 Pay cash on accounts payable, $10,000. January 8 Purchase additional inventory on account, $87,900. January 15 Receive cash on accounts receivable, $22,500. January 19 Pay cash for salaries, $30,300. January 28 Pay cash for January utilities, $17,000. January 30 Sales for January total $225,000. All of these sales are on account. The cost of the units sold is $117,500. Information for adjusting entries: a. Depreciation on the equipment for the month of January is calculated using the straight-line method. b. The company estimates future uncollectible accounts. The company determines $3,500 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 2% of these accounts are estimated to be uncollectible. (Hint: Use the January 31 accounts receivable balance calculated in the general ledger.) c. Accrued interest revenue on notes receivable for January. d. Unpaid salaries at the end of January are $33,100. e. Accrued income taxes at the end of January are $9,500. 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. Return on Assets Ratio Choose Numerator Choose Denominator Return on Assets Ratio Return on assets 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? O More profitable Less profitable Requirement 2: b-1. Calculate the profit margin for the month of January. Profit Margin Choose Numerator Choose Denominator Profit Margin Profit Margin b-2. If the industry average profit margin is 5%, is the company more or less efficient at converting sales to profit than other companies in the same industry? O More efficient O Less efficient Requirement 3: C-1. Calculate the asset turnover ratio for the month of January Asset Turnover Ratio Choose Numerator Choose Denominator Asset Turnover Ratio Asset Turnover times c-2. If the industry average asset turnover is 0.5 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 Less efficient
