The trial balance of the Parton Wholesale Company contained the following accounts at December 31, 2010 the end of the company?s calendar year. PARTON WHOLESALE COMPANY Trial Balance 31-Dec-10 Debit Credit Cash $ 34,400 Accounts Receivable 36,600 Merchandise Inventory (Beginning) 62,400 Land 92,000 Buildings 197,000 Accumulated Depreciation-Buildings $ 54,000 Equipment 83,500 Accumulated Depreciation-Equipment 42,400 Notes Payable 50,000 Accounts Payable 37,500 Common Stock 200,000 Retained Earnings 67,800 Dividends 10,000 Sales 886,100 Sales Discounts 4,600 Purchases 725,100 Purchase Discounts 16,000 Freight-in 12,400 Salaries Expense 69,800 Utilities Expense 9,400 Repair Expense 5,900 Gas and Oil Expense 7,200 Insurance Expense 3,500 $ 1,353,800 $ 1,353,800 Adjustment data: 1. Depreciation is $10,000 on buildings and $9,000 on equipment. (Both are administrative expenses.) 2. Interest of $7,000 is unpaid on notes payable at December 31. Other data: 1. Merchandise inventory on hand at December 31, 2010 is $90,000. 2. Salaries are 80% selling and 20% administrative. 3. Utilities expense, repair expense, and insurance expense are 100% administrative. 4. $15,000 of the notes payable are payable next year. 5. Gas and oil expense is a selling expense. 6. The beginning balance of accounts receivable is $34,750. 7. The amount of total assets at the beginning of the year is $469,225. Instructions 1) Journalize the adjusting entries. 2) Prepare a multiple-step income statement and a retained earnings statement for the year ended, as well as a classified balance sheet as of December 31, 2010. 
Project I The trial balance of the Parton Wholesale Company contained the following accounts at December 31, 2010 the end of the company's calendar year. PARTON WHOLESALE COMPANY Trial Balance 31-Dec-10 Cash Accounts Receivable Merchandise Inventory (Beginning) Land Buildings Accumulated Depreciation-Buildings Equipment Accumulated Depreciation-Equipment Notes Payable Accounts Payable Common Stock Retained Earnings Dividends Sales Sales Discounts Purchases Purchase Discounts Freight-in Salaries Expense Utilities Expense Repair Expense Gas and Oil Expense Insurance Expense $ Debit 34,400 36,600 62,400 92,000 197,000 Credit $ 54,000 83,500 42,400 50,000 37,500 200,000 67,800 10,000 886,100 4,600 725,100 16,000 12,400 69,800 9,400 5,900 7,200 3,500 $ 1,353,800 $ 1,353,800 Adjustment data: 1. Depreciation is $10,000 on buildings and $9,000 on equipment. (Both are administrative expenses.) 2. Interest of $7,000 is unpaid on notes payable at December 31. Other data: 1. Merchandise inventory on hand at December 31, 2010 is $90,000. 2. 3. 4. 5. 6. 7. Salaries are 80% selling and 20% administrative. Utilities expense, repair expense, and insurance expense are 100% administrative. $15,000 of the notes payable are payable next year. Gas and oil expense is a selling expense. The beginning balance of accounts receivable is $34,750. The amount of total assets at the beginning of the year is $469,225. Instructions 1) Journalize the adjusting entries. 2) Prepare a multiple-step income statement and a retained earnings statement for the year ended, as well as a classified balance sheet as of December 31, 2010. The trial balance of the Parton Wholesale Company contained the following accounts at December 31, 2010 the end of the company's calendar year. PARTON WHOLESALE COMPANY Trial Balance 31-Dec-10 Debit $34,400 $36,600 $62,400 $92,000 $197,000 Cash Accounts Receivable Merchandise Inventory (Beginning) Land Buildings Accumulated Depreciation-Buildings Equipment Accumulated Depreciation-Equipment Notes Payable Accounts Payable Common Stock Retained Earnings Dividends Sales Sales Discounts Purchases Purchase Discounts Freight-in Salaries Expense Utilities Expense Repair Expense Gas and Oil Expense Insurance Expense Credit $54,000 $83,500 $42,400 $50,000 $37,500 $200,000 $67,800 $10,000 $886,100 $4,600 $725,100 $16,000 $12,400 $69,800 $9,400 $5,900 $7,200 $3,500 $1,353,800 $1,353,800 Adjustment data: 1. Depreciation is $10,000 on buildings and $9,000 on equipment. (Both are administrative expenses.) 2. Interest of $7,000 is unpaid on notes payable at December 31. Other data: 1. Merchandise inventory on hand at December 31, 2010 is $90,000. 2. Salaries are 80% selling and 20% administrative. 3. Utilities expense, repair expense, and insurance expense are 100% administrative. 4. $15,000 of the notes payable are payable next year. 5. Gas and oil expense is a selling expense. 6. The beginning balance of accounts receivable is $34,750. 7. The amount of total assets at the beginning of the year is $469,225. Instructions 1) Journalize the adjusting entries. Particulars Depreication Expenses A/c----------Dr To Accumulated Depreciation Building A/c Amount $10,000 Amount $10,000 Depreication Expenses A/c----------Dr To Accumulated Depreciation Equipment A/c $9,000 Interest Expenses A/c-------------------------Dr To Interest payable A/c $7,000 $9,000 $7,000 2) Prepare a multiple-step income statement and a retained earnings statement for the year ended, as well as a classified balance sheet as of December 31, 2010. Solution: Computation of the Income Statement Income statement December 31, 2010. PARTON WHOLESALE COMPANY Particulars Amount Amount Sales $886,100 Sales Discounts $(4,600) Net Sales $881,500 Merchandise Inventory (Beginning) $62,400 Purchases $725,100 Purchase Discounts $(16,000) Merchandise inventory on hand at December 31 $(90,000) Cost of good sold $681,500 Gross income $200,000 Add: Admistration Exp Freight-in $12,400 Salaries Expense $13,960 Utilities Expense $9,400 Dep Exp Building $10,000 Dep Exp Equipment $9,000 Repair Expense $5,900 Insurance Expense $3,500 $64,160 Operating profit $135,840 Add: Selling Exp Salaries Expense $55,840 Gas and Oil Expense $7,200 $63,040 EBIT $72,800 Interest Exp $(7,000) Net income $65,800 Retained Earnings December 31, 2010. PARTON WHOLESALE COMPANY Particulars Amount Retained Earnings Opening Add: Net Income Less: Dividend Retained Earning Ending Balance sheet December 31, 2010. PARTON WHOLESALE COMPANY Particulars Amount Cash $34,400 Accounts Receivable $36,600 Merchandise Inventory (Ending) $90,000 Total Current Assets Land Buildings $197,000 Accumulated Depreciation-Buildings $(64,000) Equipment $83,500 Accumulated Depreciation-Equipment $(51,400) T otal Assets Notes Payable Interest Payable Accounts Payable Current Liabilities Long term Debts Notes Payable Common Stock Retained Earnings T otal Liabilities and Share holders 3) Amount $67,800 $65,800 $(10,000) $123,600 Amount $161,000 $92,000 $133,000 $32,100 $418,100 $15,000 $7,000 $37,500 $59,500 $35,000 $200,000 $123,600 $323,600 $418,100 Prepare the following ratios and show all support for your computations: a) Current Ratio 161,000/59,000= 2.71:1 The ratio of 2.71 means that for every dollar of current liabilities, Parton has $2.71 of current assets. b) Quick Ratio c) Working Capital d) Accounts Receivable Turnover e) Average Collection Period f) Inventory Turnover g) Days in Inventory h) Debt to Total Assets Ratio i) Gross Profit Ratio j) Profit Margin Ratio k) Return on Assets Ratio l) Asset Turnover Ratio 4) Based on the ratios computed in 3) above, answer the following questions and use the financial statement ratios to support your answers where appropriate: Do you feel that the company is able to meet its current and long term obligations as they become due? Comment on the profitability of the company with respect to the various profitability ratios that you computed. Would you lend money to this company for the long term? Comment on the ability of the company to collect its receivables and mange inventory. 2007 Liquidity Current Quick Working Capital Leverage Debt to Total Assets (%) Times Interest Earned Activity Inventory Turnover (sales) Fixed Asset Turnover Total Asset Turnover Average Collection Period (days) Accounts Receivable Turnover Days in Inventory Profitability Gross Profit Margin (%) Net Profit (%) Return on Total Assets (%) Return on Equity (%) Payout Ratio (%) 2.39 1.1 $98,750.00 2008 2009 Industry Average 2.68 2.9 3.12 1.16 1.21 1.56 $100,450.00 $103,000.00 $110,000.00 20.97% 8.75 21.98% 9.12 22.89% 9.56 20.89% 10.22 821.00% 343.00% 215.00% 1495.00% 2408.00% 44.46 991.00% 351.00% 220.00% 1469.00% 2450.00% 36.83 1012.00% 359.00% 225.00% 1442.00% 2497.00% 36.07 1052.00% 364.00% 256.00% 1428.00% 2521.00% 43.21 21.10% 6.89% 15.50% 20.15% 15.10% 22.50% 7.25% 16.10% 21.89% 15.84% 24.03% 7.89% 16.24% 22.15% 16.09% 24.56% 8.03% 16.07% 22.06% 16.86% a) Current Ratio b) Quick Ratio c) Working Capital d) Accounts Receivable Turnover e) Average Collection Period f) Inventory Turnover g) Days in Inventory h) Debt to Total Assets Ratio i) Gross Profit Ratio j) Profit Margin Ratio k) Return on Assets Ratio l) Asset Turnover Ratio The trial balance of the Parton Wholesale Company contained the following accounts at December 31, 2010 the end of the company's calendar year. PARTON WHOLESALE COMPANY Trial Balance 31-Dec-10 Debit $34,400 $36,600 $62,400 $92,000 $197,000 Cash Accounts Receivable Merchandise Inventory (Beginning) Land Buildings Accumulated Depreciation-Buildings Equipment Accumulated Depreciation-Equipment Notes Payable Accounts Payable Common Stock Retained Earnings Dividends Sales Sales Discounts Purchases Purchase Discounts Freight-in Salaries Expense Utilities Expense Repair Expense Gas and Oil Expense Insurance Expense Credit $54,000 $83,500 $42,400 $50,000 $37,500 $200,000 $67,800 $10,000 $886,100 $4,600 $725,100 $16,000 $12,400 $69,800 $9,400 $5,900 $7,200 $3,500 $1,353,800 $1,353,800 Adjustment data: 1. Depreciation is $10,000 on buildings and $9,000 on equipment. (Both are administrative expenses.) 2. Interest of $7,000 is unpaid on notes payable at December 31. Other data: 1. Merchandise inventory on hand at December 31, 2010 is $90,000. 2. Salaries are 80% selling and 20% administrative. 3. Utilities expense, repair expense, and insurance expense are 100% administrative. 4. $15,000 of the notes payable are payable next year. 5. Gas and oil expense is a selling expense. 6. The beginning balance of accounts receivable is $34,750. 7. The amount of total assets at the beginning of the year is $469,225. Instructions 1) Journalize the adjusting entries. Particulars Depreication Expenses A/c----------Dr To Accumulated Depreciation Building A/c Amount $10,000 Amount $10,000 Depreication Expenses A/c----------Dr To Accumulated Depreciation Equipment A/c $9,000 Interest Expenses A/c-------------------------Dr To Interest payable A/c $7,000 $9,000 $7,000 2) Prepare a multiple-step income statement and a retained earnings statement for the year ended, as well as a classified balance sheet as of December 31, 2010. Solution: Computation of the Income Statement Income statement December 31, 2010. PARTON WHOLESALE COMPANY Particulars Amount Amount Sales $886,100 Sales Discounts $(4,600) Net Sales $881,500 Merchandise Inventory (Beginning) $62,400 Purchases $725,100 Purchase Discounts $(16,000) Merchandise inventory on hand at December 31 $(90,000) Cost of good sold $681,500 Gross income $200,000 Add: Admistration Exp Freight-in $12,400 Salaries Expense $13,960 Utilities Expense $9,400 Dep Exp Building $10,000 Dep Exp Equipment $9,000 Repair Expense $5,900 Insurance Expense $3,500 $64,160 Operating profit $135,840 Add: Selling Exp Salaries Expense $55,840 Gas and Oil Expense $7,200 $63,040 EBIT $72,800 Interest Exp $(7,000) Net income $65,800 Retained Earnings December 31, 2010. PARTON WHOLESALE COMPANY Particulars Amount Retained Earnings Opening Add: Net Income Less: Dividend Retained Earning Ending Balance sheet December 31, 2010. PARTON WHOLESALE COMPANY Particulars Amount Cash $34,400 Accounts Receivable $36,600 Merchandise Inventory (Ending) $90,000 Total Current Assets Land Buildings $197,000 Accumulated Depreciation-Buildings $(64,000) Equipment $83,500 Accumulated Depreciation-Equipment $(51,400) T otal Assets Notes Payable Interest Payable Accounts Payable Current Liabilities Long term Debts Notes Payable Common Stock Retained Earnings T otal Liabilities and Share holders 3) Amount $67,800 $65,800 $(10,000) $123,600 Amount $161,000 $92,000 $133,000 $32,100 $418,100 $15,000 $7,000 $37,500 $59,500 $35,000 $200,000 $123,600 $323,600 $418,100 Prepare the following ratios and show all support for your computations: a) Current Ratio 161,000/59,000= 2.71:1 The ratio of 2.71 means that for every dollar of current liabilities, Parton has $2.71 of current assets. b) Quick Ratio c) Working Capital d) Accounts Receivable Turnover e) Average Collection Period f) Inventory Turnover g) Days in Inventory h) Debt to Total Assets Ratio i) Gross Profit Ratio j) Profit Margin Ratio k) Return on Assets Ratio l) Asset Turnover Ratio 4) Based on the ratios computed in 3) above, answer the following questions and use the financial statement ratios to support your answers where appropriate: Do you feel that the company is able to meet its current and long term obligations as they become due? Comment on the profitability of the company with respect to the various profitability ratios that you computed. Would you lend money to this company for the long term? Comment on the ability of the company to collect its receivables and mange inventory. 2007 Liquidity Current Quick Working Capital Leverage Debt to Total Assets (%) Times Interest Earned Activity Inventory Turnover (sales) Fixed Asset Turnover Total Asset Turnover Average Collection Period (days) Accounts Receivable Turnover Days in Inventory Profitability Gross Profit Margin (%) Net Profit (%) Return on Total Assets (%) Return on Equity (%) Payout Ratio (%) 2.39 1.1 $98,750.00 2008 2009 Industry Average 2.68 2.9 3.12 1.16 1.21 1.56 $100,450.00 $103,000.00 $110,000.00 20.97% 8.75 21.98% 9.12 22.89% 9.56 20.89% 10.22 821.00% 343.00% 215.00% 1495.00% 2408.00% 44.46 991.00% 351.00% 220.00% 1469.00% 2450.00% 36.83 1012.00% 359.00% 225.00% 1442.00% 2497.00% 36.07 1052.00% 364.00% 256.00% 1428.00% 2521.00% 43.21 21.10% 6.89% 15.50% 20.15% 15.10% 22.50% 7.25% 16.10% 21.89% 15.84% 24.03% 7.89% 16.24% 22.15% 16.09% 24.56% 8.03% 16.07% 22.06% 16.86% a) Current Ratio b) Quick Ratio c) Working Capital d) Accounts Receivable Turnover e) Average Collection Period f) Inventory Turnover g) Days in Inventory h) Debt to Total Assets Ratio i) Gross Profit Ratio j) Profit Margin Ratio k) Return on Assets Ratio l) Asset Turnover Ratio The trial balance of the Parton Wholesale Company contained the following accounts at December 31, 2010 the end of the company's calendar year. PARTON WHOLESALE COMPANY Trial Balance 31-Dec-10 Debit $34,400 $36,600 $62,400 $92,000 $197,000 Cash Accounts Receivable Merchandise Inventory (Beginning) Land Buildings Accumulated Depreciation-Buildings Equipment Accumulated Depreciation-Equipment Notes Payable Accounts Payable Common Stock Retained Earnings Dividends Sales Sales Discounts Purchases Purchase Discounts Freight-in Salaries Expense Utilities Expense Repair Expense Gas and Oil Expense Insurance Expense Credit $54,000 $83,500 $42,400 $50,000 $37,500 $200,000 $67,800 $10,000 $886,100 $4,600 $725,100 $16,000 $12,400 $69,800 $9,400 $5,900 $7,200 $3,500 $1,353,800 $1,353,800 Adjustment data: 1. Depreciation is $10,000 on buildings and $9,000 on equipment. (Both are administrative expenses.) 2. Interest of $7,000 is unpaid on notes payable at December 31. Other data: 1. Merchandise inventory on hand at December 31, 2010 is $90,000. 2. Salaries are 80% selling and 20% administrative. 3. Utilities expense, repair expense, and insurance expense are 100% administrative. 4. $15,000 of the notes payable are payable next year. 5. Gas and oil expense is a selling expense. 6. The beginning balance of accounts receivable is $34,750. 7. The amount of total assets at the beginning of the year is $469,225. Instructions 1) Journalize the adjusting entries. Particulars Depreication Expenses A/c----------Dr To Accumulated Depreciation Building A/c Amount $10,000 Amount $10,000 Depreication Expenses A/c----------Dr To Accumulated Depreciation Equipment A/c $9,000 Interest Expenses A/c-------------------------Dr To Interest payable A/c $7,000 $9,000 $7,000 2) Prepare a multiple-step income statement and a retained earnings statement for the year ended, as well as a classified balance sheet as of December 31, 2010. Solution: Computation of the Income Statement Income statement December 31, 2010. PARTON WHOLESALE COMPANY Particulars Amount Amount Sales $886,100 Sales Discounts $(4,600) Net Sales $881,500 Merchandise Inventory (Beginning) $62,400 Purchases $725,100 Purchase Discounts $(16,000) Merchandise inventory on hand at December 31 $(90,000) Cost of good sold $681,500 Gross income $200,000 Add: Admistration Exp Freight-in $12,400 Salaries Expense $13,960 Utilities Expense $9,400 Dep Exp Building $10,000 Dep Exp Equipment $9,000 Repair Expense $5,900 Insurance Expense $3,500 $64,160 Operating profit $135,840 Add: Selling Exp Salaries Expense $55,840 Gas and Oil Expense $7,200 $63,040 EBIT $72,800 Interest Exp $(7,000) Net income $65,800 Retained Earnings December 31, 2010. PARTON WHOLESALE COMPANY Particulars Amount Retained Earnings Opening Add: Net Income Less: Dividend Retained Earning Ending Balance sheet December 31, 2010. PARTON WHOLESALE COMPANY Particulars Amount Cash $34,400 Accounts Receivable $36,600 Merchandise Inventory (Ending) $90,000 Total Current Assets Land Buildings $197,000 Accumulated Depreciation-Buildings $(64,000) Equipment $83,500 Accumulated Depreciation-Equipment $(51,400) T otal Assets Notes Payable Interest Payable Accounts Payable Current Liabilities Long term Debts Notes Payable Common Stock Retained Earnings T otal Liabilities and Share holders 3) Amount $67,800 $65,800 $(10,000) $123,600 Amount $161,000 $92,000 $133,000 $32,100 $418,100 $15,000 $7,000 $37,500 $59,500 $35,000 $200,000 $123,600 $323,600 $418,100 Prepare the following ratios and show all support for your computations: a) Current Ratio 161,000/59,000= 2.71:1 The ratio of 2.71 means that for every dollar of current liabilities, Parton has $2.71 of current assets. b) Quick Ratio c) Working Capital d) Accounts Receivable Turnover e) Average Collection Period f) Inventory Turnover g) Days in Inventory h) Debt to Total Assets Ratio i) Gross Profit Ratio j) Profit Margin Ratio k) Return on Assets Ratio l) Asset Turnover Ratio 4) Based on the ratios computed in 3) above, answer the following questions and use the financial statement ratios to support your answers where appropriate: Do you feel that the company is able to meet its current and long term obligations as they become due? Comment on the profitability of the company with respect to the various profitability ratios that you computed. Would you lend money to this company for the long term? Comment on the ability of the company to collect its receivables and mange inventory. 2007 Liquidity Current Quick Working Capital Leverage Debt to Total Assets (%) Times Interest Earned Activity Inventory Turnover (sales) Fixed Asset Turnover Total Asset Turnover Average Collection Period (days) Accounts Receivable Turnover Days in Inventory Profitability Gross Profit Margin (%) Net Profit (%) Return on Total Assets (%) Return on Equity (%) Payout Ratio (%) 2.39 1.1 $98,750.00 2008 2009 Industry Average 2.68 2.9 3.12 1.16 1.21 1.56 $100,450.00 $103,000.00 $110,000.00 20.97% 8.75 21.98% 9.12 22.89% 9.56 20.89% 10.22 821.00% 343.00% 215.00% 1495.00% 2408.00% 44.46 991.00% 351.00% 220.00% 1469.00% 2450.00% 36.83 1012.00% 359.00% 225.00% 1442.00% 2497.00% 36.07 1052.00% 364.00% 256.00% 1428.00% 2521.00% 43.21 21.10% 6.89% 15.50% 20.15% 15.10% 22.50% 7.25% 16.10% 21.89% 15.84% 24.03% 7.89% 16.24% 22.15% 16.09% 24.56% 8.03% 16.07% 22.06% 16.86% a) Current Ratio b) Quick Ratio c) Working Capital d) Accounts Receivable Turnover e) Average Collection Period f) Inventory Turnover g) Days in Inventory h) Debt to Total Assets Ratio i) Gross Profit Ratio j) Profit Margin Ratio k) Return on Assets Ratio l) Asset Turnover Ratio
