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    Balance Sheets, Statement of Accounts

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    ACC 300
    PROBLEM 1
    WIDGET Company has the following adjusted trial balance at December 31, 2006. No dividends have been declared.
    Account Debit Credit
    Cash $1,500
    Accounts Receivable 2,000
    Interest receivable 30
    Prepaid Insurance 2,300
    Notes Receivable 3,000
    Equipment 12,000
    Accumulated Depreciation $300
    Accounts payable 1,600
    Accrued Expenses Payable 3,820
    Income Taxes payable 2,900
    Unearned rent revenue 600
    Contributed capital 2,400
    Retained earnings 1,000
    Sales revenue 42,000
    Interest Revenue 30
    Rent revenue 300
    Wages expense 21,600
    Depreciation expense 300
    Utilities expense 220
    Insurance expense 100
    Rent expense 9,000
    Income Tax Expense 2,900
    TOTAL $54,950 $54,950

    1. Prepare in proper form an income statement for 2006. Widget Company's core operations related to computer technology. How much net income did Widget Company generate during 2006?
    2. Prepare in proper form a statement of retained earnings for 2006.
    3. Prepare in proper from a balance sheet on December 31, 2006. Are the company's assets financed primarily by debt or equity?
    4. Prepare the closing journal entries on December 31, 2006.

    PROBLEM 2

    The comparative financial statements for Joe's Company showed the following summarized data:

    1. Complete the final two columns shown beside each item in the comparative financial statements above. Does anything jump out at you from the year over year analysis?
    2. Given the data above, compute the following:

    a. Compute the gross profit percentages in 2004 and 2003. Is the trend going in the right direction?
    b. Compute the net profit margin ratios in 2004 and 2003. Is the trend going in the right direction?
    c. Compute the earnings per share for 2004 and 2003. Does the trend look good or bad? Explain.
    d. Stockholders' equity totaled $100,000 at the end of 2002. Compute the return on equity ratios for 2004 and 2003. Is the trend going in the right direction?
    e. Net property and equipment totaled $110,000 at the end of 2002. Compute the fixed asset turnover ratios for 2004 and 2003. Is the trend going in the right direction?
    f. Compute the debt-to-assets ratios for 2004 and 2003. Is debt providing financing for a larger or smaller proportion of the company's asset growth? Explain.
    g. Compute the times interest earned ratios for 2004 and 2003. Do they look good or bad? Explain.
    h. After Joe released its 2004 financial statements, the company's stock was trading at $18. After the release of its 2003 financial statements, the company's stock price was $15 per share. Compute the P/E ratios for both years. Does it appear that investors have become more (or less) optimistic about Joe's future

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    Attachments

    Solution Preview

    Please see attached speadsheet for illustration. (Note: each tab along the bottom of the sheet is a separate portion of the problem.)

    A few general notes:
    When creating a Balance Sheet, the accounts are listed by level of liquidity. "Current" items, in either Assets or Liabilities are those items which have a value that must be paid (liability) or can be converted to cash (asset) within one year.
    If the asset or liability has a longer maturity date than 1 year, they are considered long-term. (Remember, a Balance Sheet must balance. (Assets = Liaibilies + Owner's ...

    Solution Summary

    The solution examines balance sheets and statements of accounts for a Widget Company's core operations.

    $2.19

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