The trial balance of the Parton Wholesale Company contained the following accounts at December 31, 2010 the

Question:

The trial balance of the Parton Wholesale Company contained the following accounts at

December 31, 2010 the end of the company's calendar year.


The trial balance of the Parton Wholesale Company contained the following


  • 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:
    Do you feel that the company is able to meet its current and long term obligations as they become due?
    Comment on the profitability of the company with respect to the various profitability ratios that you computed.
    Would you lend money to this company for the long term?
    Comment on the ability of the company to collect its receivables and manage inventory.
Asset Turnover
Asset turnover is sales divided by total assets. Important for comparison over time and to other companies of the same industry. This is a standard business ratio.
Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...
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Related Book For  book-img-for-question

Financial accounting

ISBN: 978-1118285909

IFRS Edition

Authors: Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel

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