College Accounting Study Set 7

Business

Quiz 13 :

Financial Statements and Closing Procedures

Quiz 13 :

Financial Statements and Closing Procedures

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Spector Company had an increase in sales and net income during its last fiscal year, but cash decreased and the firm was having difficulty paying its bills by the end of the year. What factors might cause a shortage of cash even though a firm is profitable?
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In the given case during last fiscal year, though there has been an increase in sales and net income, Spector Company's cash has significantly decreased and the company is finding it difficult to pay its bills by the end of the year.
The reason for the same could be
• Increase in Sales and Net Income could be attributed to :
1. Higher Credit sales
2. Non cash incomes and gains.
• Furthermore the cash crunch experienced by the company may be attributed to :
1. Improper credit policy,
2. Too many discounts,
3. Lack of proper follow up with Debtors for collections.
4. Disproportionate increase in cash expenses in comparison to cash inflows.
5. Cash Drawings by Owners

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McCormick and Company, Incorporated reported the following in its 2009 Annual Report: img Analyze: The company reported net sales of $3,192 million and gross profit of $1,327 million for its fiscal year ended November 30, 2009. What is the gross profit percentage for this period?
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Current ratio:
• Current ratio shows the company ability to repay their short term obligations like accounts payable, salaries payable, dividend payable, etc.
• Users can understand easily company's liquidity by using this current ratio.
• A higher current ratio indicates higher liquidity position of the company, and lower ratio indicates less liquidity position.
• Current ratio will be calculated by using following formula.
img 1.
Calculate the current ratio:
2009:
img 2008:
img 2.
M's current declined ratio declined from 2008 to 2009. Due to this, we can understand that company's ability to meet the obligations declined.
3.
Calculate Gross profit Ratio:
img

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Preparing classified financial statements. Obtain all data necessary from the worksheet prepared for The Wine Shop in Problem 12.6A at the end of Chapter 12. Then follow the instructions to complete this problem. INSTRUCTIONS 1. Prepare a classified income statement for the year ended December 31, 2013. The company does not classify its operating expenses as selling expenses and general and administrative expenses. 2. Prepare a statement of owner's equity for the year ended December 31, 2013. No additional investments were made during the year. 3. Prepare a classified balance sheet as of December 31, 2013. Analyze: What is the inventory turnover for The Wine Shop?
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Financial statements:
Net income is the excess of revenues over expenses.
The following is the formula for calculating net income:
img Revenue is defined as the amount that an organization actually receives over a period of time in exchange of transactions or rendering its services or by selling goods. For example, when a professional firm renders its services of advising to its clients, the clients gives the firm fees which accounts as revenue for the firm.
Expenses are defined as the amount that the organization spends over a period of time.
For example, the expenses of a professional firm would be salaries, stationery etc.
The following statement shows the calculation of net income of M/s W for the year ended Dec 31, 2013:
img Statement of owner's equity is the statement that shows the total amount that an organization owes to its proprietor at the end of the period.
The following statement shows the calculation of equity M/s W for the year ended Dec 31, 2013:
img Particulars
Amounts in $
Amounts in $
Mr. V, capital Jan 1, 2013
32,700
Add: net income/(net loss)
16,747.75
Add: owner contribution
0
Less: withdrawal's
14,110
2,637.75
Mr. V, capital Dec 31, 2013
35,337.75
A balance sheet reports the financial position of the business on a specific date. It is the result of the transactions that have been entered into during the prior period.
The following is the Balance Sheet of M/s W for the year ended Dec 31, 2013:
img Analysis:
img img img =
img Therefore, the inventory turnover ratio is 1.2405.

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Preparing classified financial statements. Hog Wild is a retail firm that sells motorcycles, parts, and accessories. The adjusted trial balance data given below is from the firm's worksheet for the year ended December 31, 2013. INSTRUCTIONS 1. Prepare a classified income statement for the year ended December 31, 2013. The expense accounts represent warehouse expenses, selling expenses, and general and administrative expenses. 2. Prepare a statement of owner's equity for the year ended December 31, 2013. No additional investments were made during the period. 3. Prepare a classified balance sheet as of December 31, 2013. The mortgage and the long-term notes extend for more than one year. ACCOUNTS img img Analyze: What is the inventory turnover for Hog Wild?
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Why should management be concerned about the efficiency of the end-of-period procedures?
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McCormick and Company, Incorporated reported the following in its 2009 Annual Report: img Analyze: Did the current ratio improve from 2008 to 2009?
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Preparing classified financial statements. Wood Design Company distributes hardwood products to small furniture manufacturers. The adjusted trial balance data given below is from the firm's worksheet for the year ended December 31, 2013. INSTRUCTIONS 1. Prepare a classified income statement for the year ended December 31, 2013. The expense accounts represent warehouse expenses, selling expenses, and general and administrative expenses. 2. Prepare a statement of owner's equity for the year ended December 31, 2013. No additional investments were made during the period. 3. Prepare a classified balance sheet as of December 31, 2013. The mortgage and the loans extend for more than a year. ACCOUNTS img img Analyze: What is the current ratio for this business?
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What is the purpose of the balance sheet?
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For the last three years, the balance sheet of Desai Hardware Center, a large retail store, has shown a substantial increase in merchandise inventory. Why might management be concerned about this development?
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Classifying balance sheet items. The following accounts appear on the worksheet of Giddy's Craft Store at December 31, 2013. Indicate the section of the classified balance sheet in which each account will be reported. SECTIONS OF CLASSIFIED BALANCE SHEET a. Current Assets b. Plant and Equipment c. Current Liabilities d. Long-Term Liabilities e. Owner's Equity ACCOUNTS 1. Accounts Receivable 2. Delivery Van 3. Prepaid Insurance 4. Notes Payable, due 2014 5. Store Supplies 6. Accounts Payable 7. Merchandise Inventory 8. Ray Lynch, Capital 9. Cash 10. Unearned Subscriptions Income
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Preparing classified financial statements. Obtain all data necessary from the worksheet prepared for The Game Place in Problem 12.6B at the end of Chapter 12. Then follow the instructions to complete this problem. INSTRUCTIONS 1. Prepare a classified income statement for the year ended December 31, 2013. The company does not classify its operating expenses as selling expenses and general and administrative expenses. 2. Prepare a statement of owner's equity for the year ended December 31, 2013. No additional investments were made during the year. 3. Prepare a classified balance sheet as of December 31, 2013. Analyze: What is the amount of working capital for The Game Place?
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Preparing classified financial statements. Good to Go Auto Products distributes automobile parts to service stations and repair shops. The adjusted trial balance data that follows is from the firm's worksheet for the year ended December 31, 2013. INSTRUCTIONS 1. Prepare a classified income statement for the year ended December 31, 2013. The expense accounts represent warehouse expenses, selling expenses, and general and administrative expenses. 2. Prepare a statement of owner's equity for the year ended December 31, 2013. No additional investments were made during the period. 3. Prepare a classified balance sheet as of December 31, 2013. The mortgage and the long-term notes extend for more than one year. ACCOUNTS img img Analyze: What percentage of total operating expenses is attributable to warehouse expenses?
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Journalizing adjusting, closing, and reversing entries. Obtain all data that is necessary from the worksheet prepared for Whatnots in Problem 12.5B at the end of Chapter 12. Then follow the instructions to complete this problem. INSTRUCTIONS 1. Record adjusting entries in the general journal as of December 31, 2013. Use 29 as the first journal page number. Include descriptions for the entries. 2. Record closing entries in the general journal as of December 31, 2013. Include descriptions. 3. Record reversing entries in the general journal as of January 1, 2014. Include descriptions. Analyze: Assuming that the company did not record a reversing entry for salaries payable, what entry is required when salaries of $2,600 are paid on January 4? (Ignore payroll taxes withheld.)
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Preparing a classified income statement. The worksheet of Alec's Office Supplies contains the following revenue, cost, and expense accounts. Prepare a classified income statement for this firm for the year ended December 31, 2013. The merchandise inventory amounted to $58,775 on January 1, 2013, and $51,725 on December 31, 2013. The expense accounts numbered 611 through 617 represent selling expenses, and those numbered 631 through 646 represent general and administrative expenses. ACCOUNTS img img
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Preparing classified financial statements. Lite Speed Electronics is a retail store that sells computers and computer supplies. The adjusted trial balance data given below is from the firm's worksheet for the year ended December 31, 2013. INSTRUCTIONS 1. Prepare a classified income statement for the year ended December 31, 2013. The expense accounts represent warehouse expenses, selling expenses, and general and administrative expenses. 2. Prepare a statement of owner's equity for the year ended December 31, 2013. No additional investments were made during the period. 3. Prepare a classified balance sheet as of December 31, 2013. The mortgage and the loans extend for more than one year. ACCOUNTS img img img Analyze: What is the gross profit percentage for the period ended December 31, 2013?
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Classifying income statement items. The accounts listed on the next page appear on the worksheet of Giddy's Craft Store. Indicate the section of the classified income statement in which each account will be reported. SECTIONS OF CLASSIFIED INCOME STATEMENT a. Operating Revenue b. Cost of Goods Sold c. Operating Expenses d. Other Income e. Other Expenses ACCOUNTS 1. Purchases Returns and Allowances 2. Telephone Expense 3. Sales Returns and Allowances 4. Purchases 5. Interest Income 6. Merchandise Inventory 7. Interest Expense 8. Sales 9. Depreciation Expense-Store Equipment 10. Rent Expense
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Which section of the income statement contains information about the purchases made during the period and the beginning and ending inventories?
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What is the difference, if any, between the classification Other Revenue and Expense and the classification Extraordinary Gains and Losses?
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What are operating expenses?
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Preparing a statement of owner's equity. The worksheet of Alec's Office Supplies contains the following owner's equity accounts. Use this data and the net income determined in Exercise 13.3 to prepare a statement of owner's equity for the year ended December 31, 2013. No additional investments were made during the period. ACCOUNTS img
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