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General Ledger Accounts for XYZ Company

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For questions 1, 2 and 3, XYZ Company shows the following general ledger accounts:

? Revenue $2,000,000
? Expenses $1,000,000
? Cash $400,000
? Accounts Receivable $600,000
? Land $2,000,000
? Inventory $1,000,000
? Accounts Payable $500,000
? Notes Payable $500,000
? Income Tax $400,000
? Capital Stock $1,500,000
? Retained Earnings $2,500,000

1. The quick ratio is:

a. 1.0
b. 2.0
c. 4.0
d. 6.0
e. None of the above
f. Cannot be determined from the information provided

Quick ratio=Quick Assets/Current Liabilities
= (Cash+ Accounts receivables)/ (Notes Payable+ Accounts Payable)
= (400000+600000)/ (500000+500000)
=1 time
The answer is a. 1.0 time

2. Return on equity is:

a. 15%
b. 24%
c. 25%
d. 40%
e. None of the above
f. Cannot be determined from the information provided

Return on equity= Net Profit after taxes/Stock Holder equity
= (2000000-1000000-400000)/ (1500000+2500000)
=15%

The answer is a.15%

3. Working capital is:

a. $400,000
b. $500,000
c. $1,500,000
d. $4,000,000
e. None of the above
f. Cannot be determined from the information provided

=Current Assets- Current Liabilities
= (Inventory+ Cash+ Accounts receivables)- (Notes Payable+ Accounts Payable)
= (400000+600000+1000000) - (500000+500000)
= $1000000

e. None of the above

4. On the average, a firm has the following characteristics:

? Orders inventory from supplier each 90 days
? Pays for shipments from supplier 30 days after receipt
? Processes shipments received and makes the goods available for sale 15 days after receipt
? Sells goods 50 days after receipt
? Receives payment for good sold 40 days after sale

The cash conversion cycle is:

a. 60 days
b. 70 days
c. 90 days
d. 100 days
e. None of the above
f. Cannot be determined from the information provided

=Inventory conversion period+ Debtors conversion period- Payable deferral period
= 15+50+40-30
=85 days

e. None of the above

5. Under the terms 3/10, net 30; the implied interest on the trade credit is:

a. 36.00%
b. 54.75%
c. 74.35%
d. 109.50%
e. None of the above
f. Cannot be determined from the information provided

R= C*(365)/D*(100-C)= =(3*365)/((20)*(100-3))=56.4%
C=CASH DISCOUNT= 3%
D= NO. OF EXTRA DAYS THAT CUSTOMER CAN USE SUPPLIERS'S FUNDS = 30-10= 20
R= ANNUAL INTEREST RATE FOR THE USE OF THESE FUNDS
Thus the option b is close but we will chose option e.

6. Opportunity cost is:

a. The total cost to undertake an opportunity
b. The net of income less cost from undertaking a new project
c. The cost ...

Solution Summary

1650+ words show how to work a ledger account for a given company.

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