Debt Ratio for the Total Liabilities Divided by Total Assets

Questions and Problems
Week 2

Daniel Simon

FIN 324

William Hubbell

November 24, 2003

Questions
1-1 Distinguish between accounting and bookkeeping.
Accounting is the information system that measures business activities (assets, liabilities, and operating results) and communicates the results to the manager; bookkeeping is the procedural element of accounting that records the transactions of a business.
1-2 Identify five users of accounting information and explain how they use it.
1) Individuals: saving and checking accounts
2) Businesses: Use the information to set goals, measure progress and make financial decisions.
3) Investors: Use the information to evaluate investment potential and track current investments.
4) Creditors: Evaluate risk whether to loan money.
5) Taxing authorities: States can use it to determine sales tax owed, IRS and others use it to determine Income tax owed.
1-8 Give four examples of accounting entities
1) Financial Accounting Standard boards (FASB)
2) CPA's
3) Certified Management Accountants (CMA)
4) American Institute of Certified Public Accountants (AICPA)

1-9 Briefly describe the reliability principle
The reliability or objectivity principle is based on reliable data is verifiable; an example would be a receipt for a purchase.
1-11 If assets = liabilities + owners equity, then how can liabilities be expressed?
Assets - Owners equity = Liabilities
1-13 What role do transactions play in accounting?
An accounting transaction is any event that affects both the financial position of the business and can be reliably recorded.
1-53 Identify the steps in the accounting cycle; distinguish those that occur during the period from those that are performed in the end.
The accounting cycle is the process by which companies produce their financial statements for a certain period of time.
During the period
1. The accounting cycle starts with account balances at the beginning of the period.
2. Analyze and journalize transactions as they occur
3. Post journal entries to the ledger account.
End of the period
4. Compute the unadjusted balances in each account
5. Enter the trial balance on the worksheet
6. Using the adjusted trial balance or the full work sheet as a guide.
o Prepare the financial Statements
o Journalize and post the adjusting entries
o Journalize and post the closing entries
7. Prepare the post-closing trial balance (this will become step one for the next period)
Problem P1-8B on page 82
Requirement 1
a. Depreciation Expense-Equipment 7,300
Accumulated Depreciation-Equipment 7,300
b. Depreciation Expense-Building 3,970
Accumulated Depreciation-Building 3,970
c. Supplies Expense 3,580
Supplies 3,580
d. Insurance Expense 690
Insurance 690
e. Accrued Interest Expense 940
Accrued Interest 940
f. Unearned Service Revenue 7,790
Service Revenue 7,790
g. Accrued Wage Expense 770
Accrued Wage Payable 770

Income Statement
Month ending June 30, 19X9
Revenue:
Service Revenue 139,860

Expenses:
Deprecation Expense-Equipment 7,300
Depreciation Expense Building 3,970
Wage Expense 21,470
Insurance Expense 3,100
Interest Expense 11,510
Utilities Expense 4,300
Supplies Expense 3,580
55,230
Net Income 84,630

Statement of Owners Equity
Month Ending June 30, 19X9
Frank Santos Capital 68,390
Add: Net Income 84,630
153,020
Less: withdrawals -45,300
Frank Santos Capital, June 30, 19X9 107,720

Full Spectrum Color Laboratory
Adjusted Trial Balance Income Statement Balance Sheet
Account Title Dr. Cr Dr Cr Dr Cr
Cash 19,350 19,350
Account Receivable 26,470 26,470
Supplies 31,290 31,290
Prepaid insurance 3,200 3,200
Equipment 55,800 55,800
Accumulated depreciation-equipment 16,480 16,480
Building 114,900 114,900
Accumulated depreciation-building 16,850 16,850
Land 30,000 30,000
Accounts Payable 38,400 38,400
Interest Payable 1,490 1,490
Wages Payable 770 770
Unearned Service Revenue 2,300 2,300
Note Payable, Long term 97,000 97,000
Frank Santos, Capital 68,390 68,390
Frank Santos, Withdrawals 45,300 45,300
Service Revenue 139,860 139,860
Deprecation Expense-Equipment 7,300 7,300
Depreciation Expense Building 3,970 3,970
Wage Expense 21,470 21,470
Insurance Expense 3,100 3,100
Interest Expense 11,510 11,510
Utilities Expense 4,300 4,300
Supplies Expense 3,580 3,580
Total 381,540 381,540 55230 139860 326,310 241680
Net Income 84630 84630
139860 139860 326,310 326310
Question 3
Current ratio (total current assets divided by total current liabilities)
Total current assets 80,310/ ( )
Total current liabilities=_________________

Debt ratio (total liabilities divided by total assets.
Total Liabilities _______________/_______________
Total Assets=____________