Jorge Gundy opened a small motorcycle repair shop, Gundy Cycle Repair, on January 2, 2011. The shop also sells a limited number of motorcycle parts. In January 2012, Gundy realized he had never filed any tax reports for his business and therefore probably owes a considerable amount of taxes. Since he has limited experience in running a business, he has brought you all his business records, including a checkbook, canceled checks, deposit slips, suppliers’ invoices, a notice of annual property taxes of $4,620 due to the city, and a promissory note to his father-in-law for $5,000. He wants you to determine what his business owes the government and other parties.
You analyze all his records and determine the following as of December 31, 2011:
Unpaid invoices for motorcycle parts ........ $ 18,000
Parts sales (excluding sales tax) .......... 88,540
Cost of parts sold .............. 62,250
Workers’ salaries .............. 36,400
Repair revenues ............... 120,600
Current assets ............... 32,600
Motorcycle parts inventory ........... 23,500
You learn that the company has deducted $952 from the two employees’ salaries for federal income taxes owed to the government. The current social security tax is 6.2 percent on maximum earnings of $106,800 for each employee, and the current Medicare tax is 1.45 percent (no maximum earnings). The FUTA tax is 5.4 percent to the state and 0.8 percent to the federal government on the first $7,000 earned by each employee, and both employees earned more than $7,000. Gundy has not filed a sales tax report to the state (5 percent of sales).

1. Given these limited facts, determine Gundy Cycle Repair’s current liabilities as of December 31, 2011.
2. What additional information would you want from Gundy to ensure that all current liabilities have been identified?
3. Evaluate Gundy’s liquidity by calculating working capital, payables turnover, and days’ payable. Comment on the results.

  • CreatedSeptember 10, 2014
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