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    Accounting equations, current assets, journal entries and ratios

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    PE 2-4
    LO1 The Accounting Equation

    For the following four cases, use the accounting equation to compute the missing quantity.

    Assets Liabilities Owners' Equity
    Case A $10,000 $ 4,000 A
    Case B 8,000 B $3,500
    Case C C 5,500 7,000
    Case D 13,000 15,000 D

    PE 2-6
    LO1 Current Assets
    Using the following information, compute total current assets.

    Land . . . . . . . . . . . . . . . . . . . . $7,000
    Machinery . . . . . . . . . . . . . . . . 1,300
    Accounts payable . . . . . . . . . . 1,600
    Cash . . . . . . . . . . . . . . . . . . . . 625
    Buildings . . . . . . . . . . . . . . . . . 7,500
    Accounts receivable . . . . . . . . 800
    Retained earnings . . . . . . . . . . 2,200
    Inventory . . . . . . . . . . . . . . . . . 2,100

    PE 3-16
    LO3 Journal Entries with Revenues, Expenses, and Dividends
    Make the journal entries necessary to record the following eight transactions.
    a. Purchased inventory on account for $130,000.
    b. Sold goods for $100,000 cash. The goods originally cost $65,000.
    c. Paid $27,000 cash for employee wages.
    d. Paid $12,500 cash for advertising.
    e. Sold goods for $25,000 cash and $60,000 on account (a total of $85,000). The goods
    originally cost $57,000.
    f. Collected cash of $47,000 from the $60,000 receivable on account; the remaining
    $13,000 is expected to be collected later.
    g. Paid cash of $55,000 on the $130,000 payable on account; the remaining $75,000 is
    expected to be paid later.
    h. Paid cash dividends of $8,500.

    PE 3-20
    LO4 Using a Trial Balance to Prepare an Income Statement
    Using the trial balance given below, prepare an income statement.
    Debit Credit
    Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 68,000
    Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126,000
    Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216,000
    Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,000
    Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000
    Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 150,000
    Loan Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270,000
    Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250,000
    Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,000
    Sales Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 370,000
    Cost of Goods Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244,000
    Utilities Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,000
    Rental Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000
    Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,040,000 $1,040,000

    1. Calculating Ratios. Here are simplified financial statements of Phone Corporation from a recent year:

    INCOME STATEMENT
    (figures in millions of dollars)
    Net sales 13,193
    Cost of goods sold 4,060
    Other expenses 4,049
    Depreciation 2,518
    Earnings before interest and taxes (EBIT) 2,566
    Interest expenses 685
    Income before tax 1,881
    Taxes 570
    Net income 1,311
    Dividends 856

    BALANCE SHEET
    (figures in millions of dollars)
    End of Year Start of Year
    Assets
    Cash and marketable securities 89 158
    Receivables 2,382 2,490
    Inventories 187 238
    Other current assets 867 932
    Total current assets 3,525 3,818
    Net property, plant, and equipment 19,973 19,915
    Other long-term assets 4,216 3,770
    Total assets 27,714 27,503
    Liabilities and shareholders' equity
    Payables 2,564 3,040
    Short-term debt 1,419 1,573
    Other current liabilities 811 787
    Total current liabilities 4,794 5,400
    Long-term debt and leases 7,018 6,833
    Other long-term liabilities 6,178 6,149
    Shareholders' equity 9,724 9,121
    Total liabilities and shareholders' equity 27,714 27,503

    Calculate the following financial ratios:
    a. Long-term debt ratio
    b. Total debt ratio
    c. Times interest earned
    d. Cash coverage ratio
    e. Current ratio
    f. Quick ratio
    g. Operating profit margin
    h. Inventory turnover
    i. Days in inventory
    j. Average collection period
    k. Return on equity
    l. Return on assets
    m. Payout ratio

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    https://brainmass.com/business/working-capital-management/accounting-equations-current-assets-journal-entries-ratios-285031

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    Solution Summary

    The solution answers PE 2-4, 2-6, 3-16, 3-20 questions related to accounting equation, current assets, journal entries, ratios.

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