Exercise 7-21B Complete the accounting cycle using long-term asset transactions (LO7-4, 7-7)

[The following information applies to the questions displayed below.] On January 1, Year 1, the general ledger of a company includes the following account balances:

Accounts	Debit				Credit
Cash	$	60,000
Accounts Receivable		27,600
Allowance for Uncollectible Accounts					$	3,500
Inventory		37,600
Notes Receivable (5%, due in 2 years)		27,600
Land		168,000
Accounts Payable						16,100
Common Stock						233,000
Retained Earnings						68,200
Totals	$	320,800			$	320,800

During January Year 1, the following transactions occur:

January		1		Purchase equipment for $20,800. The company estimates a residual value of $2,800 and a five-year service life.
January		4		Pay cash on accounts payable, $10,800.
January		8		Purchase additional inventory on account, $95,900.
January		15		Receive cash on accounts receivable, $23,300.
January		19		Pay cash for salaries, $31,100.
January		28		Pay cash for January utilities, $17,800.
January		30		Sales for January total $233,000. All of these sales are on account. The cost of the units sold is $121,500.

Information for adjusting entries:

1. Depreciation on the equipment for the month of January is calculated using the straight-line method.
2. The company estimates future uncollectible accounts. The company determines $4,300 of accounts receivable on January 31 are past due, and 50% of these accounts are estimated to be uncollectible. The remaining accounts receivable on January 31 are not past due, and 2% of these accounts are estimated to be uncollectible. (Hint: Use the January 31 accounts receivable balance calculated in the general ledger.)
3. Accrued interest revenue on notes receivable for January.
4. Unpaid salaries at the end of January are $33,900.
5. Accrued income taxes at the end of January are $10,300.

rev: 11_22_2018_QC_CS-148298, 06_13_2019_QC_CS-170054

Exercise 7-21B Part 7

7. Analyze how well the company manages its assets:

Requirement 1:

a-1. Calculate the return on assets ratio for the month of January.

a-2. If the average return on assets for the industry in January is 2%, is the company more or less profitable than other companies in the same industry?

• More profitable

• Less profitable

Requirement 2: b-1. Calculate the profit margin for the month of January.

b-2. If the industry average profit margin is 4%, is the company more or less efficient at converting sales to profit than other companies in the same industry?

• More efficient

• Less efficient

Requirement 3: c-1. Calculate the asset turnover ratio for the month of January.

c-2. If the industry average asset turnover is 0.4 times per month, is the company more or less efficient at producing revenues with its assets than other companies in the same industry?

• More efficient

• Less efficient