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Recognition of Expenses, Transylvania Railroad Missing

During March, the activities of Evergreen Landscaping included the following transactions and events, among others. Which of these items represented expenses in March? Explain.
a. Purchased a copying machine for $2,750 cash.
b. Paid $192 for gasoline purchase for a delivery truck during March.
c. Paid $2,280 salary to an employee for time worked during March.
d. Paid an attorney $560 for legal services rendered in January.
e. Declared and paid a $1,800 dividend to shareholders.

Financial Statements.
As you can see, someone has spilled ink over some of the entries in the balance sheet and income statement of Transylvania Railroad (blue color). Use the following information to work out the missing entries.

Ratios Definitions
Long-term debt ratio 0.40 = LTD / (LTD + Equity)
Time interest earned 8.00 = EBIT / Interest Payments
Current ratio 1.40 = Current Assets / Current Liabilities
Quick ratio 1.00 = (Cash + A/R) / Current Liabilities
Cash ratio 0.20 = (Cash) / Current Liabilities
Return on assets 0.18 = (Net Income + Interest) / Avg. Assets
Return on equity 0.41 = Net Income / Avg. Equity
Inventory turnover 5.00 = COGS / Average Inventory
Average collection period 71.20 = Average A/R / Average Daily Sales

Income Statement
(figures in millions of dollars)
Net Sales
Cost of goods sold
Selling, general, and administrative expenses 10.00
Depreciation 20.00
Earnings before interest and taxes (EBIT)
Interest expense
Income before tax
Tax
Net Income

Balance Sheet This Year Last Year
Assets:
Cash and marketable securities 20
Receivables 34
Inventories 26
Total current assets 80
Net property, plant, and equipment 25
Total assets 105

Liabilities and shareholders' equity:
Accounts payable 25 20
Notes payable 30 35
Total current liabilities 55
Long-term debt 20
Shareholders' equity 30
Total liabilities and shareholders' equity 115 105

Equity Accounts.
The authorized share capital of the Ace Company is 100,000 shares. The equity is currently shown in the company?s books as follows:

Common stock ($1.00 par value) $70,000
Additional paid-in capital 10,000
Retained earnings 30,000
Common equity $110,000
Treasury stock (5,000 shares) 15,000
Net common equity $95,000

a. How many shares are issued?
b. How many are outstanding?
c. How many more shares can be issued?

Cash Budget.
The following data are from the budget of Ritewell Publishers. Half the company's sales are transacted on a cash basis. The other half are paid for with a 1-month delay. The company pays all its credit purchases with a one month delay. Credit purchases in January were $30 and total sales in January were $180. Complete the following cash budget (see below).

February March April
Total sales 200 220 180
Cash purchases 70 80 60
Credit purchases 40 30 40
Labor and administrative expenses 30 30 30
Taxes, interest, and dividends 10 10 10
Capital expenditures 100 0 0

Complete the following cash budget February March April
Sources of cash
Collections on current sales
Collections on accounts receivable
Total sources of cash
Uses of cash
Payments of accounts payable
Cash purchase
Labor and administrative expenses
Capital expenditures
Taxes, interest, and dividends
Total uses of cash
Net cash inflow
Cash as start of period 100
+ Net cash inflow
= cash at end of period
+ Minimum operating cash balance 100 100 100
= Cumulative short-term financing required

Common stock ($1.00 par value) $70,000
Additional paid-in capital 10,000
Retained earnings 30,000
Common equity $110,000
Treasury stock (5,000 shares) 15,000
Net common equity $95,000

Common stock ($1.00 par value) $70,000
Additional paid-in capital 10,000
Retained earnings 30,000
Common equity $110,000
Treasury stock (5,000 shares) 15,000
Net common equity $95,000

Solution Preview

During March, the activities of Evergreen Landscaping included the following transactions and events, among others. Which of these items represented expenses in March? Explain.

a. Purchased a copying machine for $2,750 cash.

Not an expense. This is because the copying machine would benefit many accounting periods not just the month of March. And the Revenue Recognition Principle together with the Matching Principle state that revenue should be ...

Solution Summary

The solution contains an excel sheet with full calculations for expenses recognition, competition of balance sheet and income statement entries, accounting for stock transactions, and competition of the cash budget.

$2.19