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Various balance sheet and statements of earnings accounts for Home Restoration Outlet Ltd. are listed below in random order. You will have to determine which

Various balance sheet and statements of earnings accounts for Home Restoration Outlet Ltd. are listed below in random order. You will have to determine which account goes in which statement to solve the questions.

The balance sheet accounts are as of December 31, 2005, except as noted. The statement of earnings amounts are for the year January 1 to December 31, 2005. All accounts are shown in thousands of dollars.

1) Prepare a statement of earnings, a statement of retained earnings, and a balance sheet.

2) Explain the relationship between financial statements and why it is useful for managers to understand all three.

3) Perform a "current ratio" analysis for the company and explain the company's liquidity position.

Balance sheet and statement of earnings accounts

Cash

$40

Retained earnings, Dec 31, 2004

$255

Inventory, Dec 31, 2004

$425

Note payable, due Feb 2006

$25

Selling expenses

$482

Accounts payable

$85

Accounts receivable

$104

Sales

$2,409

Income tax rate

50%

Building and equipment, cost

$150

Dividends

$70

Total Long term loan, due June 2015

$110

- 2006 portion

$10 ($10 of the $110)

Purchases

$1,304

Income tax payable

$25

Marketable securities

$30

Depreciation expense, building and equipment

$23

General and administrative expenses

$215

Cost of goods sold

$1,419

Goodwill

$85

Other expenses, interest

$20

Prepaid expenses

$42

Common stock

$130

Accumulated depreciation,
build. & equip. Dec 31, 2004

$53


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