Accounts from Max Company’s 12/31/16 adjusted pre-closing trial balance appear b
ID: 2487720 • Letter: A
Question
Accounts from Max Company’s 12/31/16 adjusted pre-closing trial balance appear below: Accounts Payable 10,000 Accounts Receivable 22,500 Accumulated Depreciation - Equipment 43,000 Allowance for Doubtful Accounts 3,000 Bad Debt Expense 1,100 Bonds Payable (due 12/31/18) 53,000 Cash 31,800 Common Stock 42,200 Cost of Goods Sold 97,000 Depreciation Expense 2,300 Equipment 122,900 Interest Expense 3,800 Merchandise Inventory 39,000 Prepaid Rent 7,100 Rent Expense 15,800 Retained Earnings (beginning balance) 18,000 Salaries and Wage Expense 55,100 Salaries Payable 4,200 Sales Revenue 225,000 First classify the accounts above (asset, liability, equity, revenue, expense). Then calculate net income and determine the ending balance of retained earnings. Finally prepare a classified balance sheet (current vs long term) using the information above. Using balance sheet, answer the questions below. 1. What is the total amount reported as Current Assets as of 12/31/16? 2. What is the total amount reported as Total Liabilities as of 12/31/16? 3. What is the total amount report as Total Stockholders’ Equity as of 12/31/16? 4. Calculate the Debt to Equity ratio as of 12/31/16 and briefly discuss what this means. 5. Calculate the Current Ratio as of 12/31/16 and briefly discuss what this means.
Explanation / Answer
Account Amt Type Sales Revenue 225,000 Revenue Cost Of Goods Sold 97,000 Expense Salary & Wage expense 55,100 Expense Rent expense 15,800 Expense Depreciation Expense 2,300 Expense Bad debt expense 1,100 Expense Interest 3,800 Expense Cash 31,800 Asset Accounts Receivable 22,500 Asset Allowance for Uncollectible A/cs (3,000) Asset Inventory 39,000 Asset Prepaid Expenses(rent) 7,100 Asset Equipment 122,900 Asset Accumulated Depreciation(equipment) (43,000) Asset Accounts Payable 10,000 Liability Salaries payable 4,200 Liability Long Term Bond Payable 53,000 Liability Common Stock 42,200 Equity Retained Earning 106,000 Equity Max Company Income Statement for the priod ended 31.12.2016. Details Amt $ Sales Revenue 225,000 Cost Of Goods Sold 97,000 Gross Profit 128,000 Operating Expenses Salary & Wage expense 55,100 Rent expense 15,800 Depreciation Expense 2,300 Bad debt expense 1,100 Total Operating Expenses 74,300 Earning before Interest & Tax 53,700 Interest 3,800 Net Income 49,900 Max Company Balance Sheet As On Dec 31.2016. Details Amt $ Assets Current Assets Cash 31,800 Accounts Receivable 22,500 Allowance for Uncollectible A/cs (3,000) Inventory 39,000 Prepaid Expenses(rent) 7,100 Total Current Assets 97,400 Non Current Assets Fixed Assets Equipment 122,900 Accumulated Depreciation(equipment) (43,000) Net Fixed Assets 79,900 Total Non Current Assets 79,900 Total Assets 177,300 Liabilities & Equities Current Liabilities Accounts Payable 10,000 Salaries payable 4,200 Total Current Liabilities 14,200 Non Current Liabilities Long Term Bond Payable 53,000 Total Non Current Liabilities 53,000 Total Liabilities 67,200 Stockholders' Equity Common Stock 42,200 Retained Earning 67,900 Total Stockholders' Equity 110,100 Total Liabilities & Equities 177,300 Positions as on 31.12.2016. 1 Total Current Asste on 31.12.2016. 97,400 2 Total Liabilities 67,200 3 Total Stockholders' Equity 110,100 4 Debt To equity =67200/110100= 0.61 A debt to equity ratio less than 1 means that the firm is levered low and there is scope to improve the leverage and get benefit of it. 5 Current Ratio=Current Asset/Current Liab= 6.86 A high current ratio of 6.86 means that the liquidity position of the firm is very comfortable and the current liabilities can be well served by current assets.