The trial balance of the Parton Wholesale Company contained the following accounts at December 31, 2010 the end of the company's calendar year.

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.Â
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.
3) Prepare the following ratios and show all support for your computations:
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
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:
a. Do you feel that the company is able to meet its current and long term obligations as they become due?
b. Comment on the profitability of the company with respect to the various profitability ratios that you computed.
c. Would you lend money to this company for the long term?Â
d. Comment on the ability of the company to collect its receivables and mangeinventory

Transcribed Image Text:

PARTON WHOLESALE COMPANY Trial Balance 31-Dec-10 Debit Credit Cash Accounts Receivable Merchandise Inventory (Beginning) 34,400 36,600 62,400 92,000 S 197,000 Buildings Accumulated Depreciation-Buildings Equipment Accumulated D Notes Pavable Accounts Pavable Common Stock Retained Earmings Dividends Sales Sales Discounts Purchases Purchase Discounts Freight-in Salaries Expense Utilities Expense 54,000 83,500 42,400 50,000 37,500 200,000 67,800 reciation-Equipment S 10.000 886,100 4.600 S 725,100 16.000 12,400 69,800 9.400 5,900 7,200 3,500 se Gas and Oil Expense Insurance上xpense S 1.353,800S 1.353,800