Financial Accouting Hw2 Essay

534 words - 3 pages

Problem 2-3: Classified Balance Sheet:

DECEMBER 31, 2012

Current assets:
Cash $ 13,230
Accounts receivable 23,450
Prepaid rent 1,500
Office supplies 2,340
Total current assets $ 40,520
Long-term investments 85,000
Property, plant, and equipment:
Land $250,000
Automobiles $112,500
Less: Accumulated depreciation 22,500 90,000
Buildings $200,000
Less: Accumulated depreciation 40,000 160,000
Total property, plant, and equipment 500,000
Intangible assets:
Patents 40,000
Total assets $665,720

Current liabilities:
Accounts payable $ 18,255
Income taxes payable 6,200
Interest payable 1,500
Notes payable, due June 30, 2013 10,000
Salaries and wages payable 4,200
Total current liabilities $ 40,155
Long-term debt:
Bonds ...view middle of the document...

At a 1 to 1 ratio, the company seems to be financially unhealthy.

Problem 2-6: Single-Step Income Statement:
Sales $ 48,300
Interest 1,340
Rent 6,700
Total revenues $ 56,340
Cost of goods sold $ 29,200
Advertising 1,500
Commissions 2,415
Depreciation—office building 2,900
Interest 1,400
Insurance—salesperson’s auto 2,250
Salaries and wages—office 12,560
Supplies—office 890
Income taxes 1,540
Total expenses 54,655
Net income $ 1,685

2. Weaknesses: The lack of any grouping of the various expenses. It is difficult to differentiate what revenues are derived from sales and operations, and what amounts come from interest or dividends of investments.

Problem 2-7 Multiple-Step Income Statement and Profit Margin:


Operating revenues $ 19,100
Operating expenses:
Selling expenses:
Advertising $ 1,500
Commissions 2,415
Insurance—salesperson’s auto 2,250
Total selling expense $ 6,165
General and administrative expenses:
Depreciation—office building $ 2,900
Salaries and wages—office 12,560
Supplies—office 890
Total general and administrative expense 16,350
Total operating expense 22,515
Income from operations $ (3,415)
Other revenues and expenses:
Interest expense $ 1,400
Interest revenue 1,340
Rent revenue 6,700
Excess of other revenues over other expenses 6,640
Income before taxes $ 3,225
Income tax expense 1,540
Net income $ 1,685

2. Main advantages: groupings of various items and the provision of important subtotals
3. Profit margin = Net income/Operating Revenues
= $1,685/$19,100 = 8.8%
4. A profit margin of 8.8% margin profit= $.09 net income for every dollar of operating revenues, it would be important to compare the profit margin with prior years and with companies in the same industry.

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