I\'m having issues with my introductory accounting homework, was hoping the inte
ID: 2387528 • Letter: I
Question
I'm having issues with my introductory accounting homework, was hoping the internet can give me some assistance!Working from these...
Interest expense $ 36,000
Paid-in capital 80,000
Accumulated depreciation 24,000
Notes payable (long-term) 280,000
Rent expense 72,000
Merchandise inventory 840,000
Accounts receivable 192,000
Depreciation expense 12,000
Land 128,000
Retained earnings 900,000
Cash 144,000
Cost of goods sold 1,760,000
Equipment 72,000
Income tax expense 240,000
Accounts payable 92,000
Sales revenue 2,480,000
A. I have found the total assets to be 1,352,000, but I'm having issues finding the total liabilities to ultimately find the difference between current assets and current liabilities
If Cramster could help me finding the total liabilities and why the liabilities are liabilities, I would truly appreciate it.
B. Calculate the earnings from operations (operating income) for the year ended December 31, 2010
I have found that the net income is 360,000, but I'm having issues calculating the earning from operations.
B P2. What was the average income tax rate for Gary's TV for 2010?
The Textbook we are using, Accounting: What the numbers mean, is extremely vague with equations and finding a resolution to the problems. I don't even know where to start with this question.
C. If $256,000 of dividends had been declared and paid during the year, what was the January 1, 2010, balance of retained earnings?
Again, I do not know where to start with this problem.
Thank you very much for your time. I greatly appreciate your services.
Explanation / Answer
The trick with any problem like this is knowing the quirks of your book or professor. There are a sometimes conflicting definitions out there for say Current Assets vs. Current liabilities when you aren't given a whole lot of information... Just keep that in mind if you decide to move on in accounting. Before we start, I would always start by ordering/labeling a list of accounts like this Labels Interest expense Expense, Income Statement Paid-in capital Equity, Balance Sheet Accumulated depreciation Asset (negative asset), Balance Sheet Notes payable (long-term) Liability (long term), Balance Sheet Rent expense Expense, Income Statement Merchandise inventory Asset (current), Balance Sheet Accounts receivable Asset (current), Balance Sheet Depreciation expense Expense, Income Statement Land Asset (long term), Balance Sheet Retained earnings Equity, Balance Sheet Cash Asset (current), Balance Sheet Cost of goods sold Expense, Income Statement Equipment Asset (long term), Balance Sheet Income tax expense Expense, Income Statement Accounts payable Liability (current), Balance Sheet Sales revenue Revenue, Income Statement This is the best, and only way to really answer a problem like this. Start with the list and label it with where it goes. A. So with this part I am assuming we're looking for Total Assets, Liabilities and Equity as well as Current Assets and Current Liabilities. A basic accounting equation to keep in mind... Assets = Liabilities + Equity Here is a list of how I calculated each of these... Assets: Inventory 840K Accounts Receivable 192K Land 128K Cash 144k Equipment 72K Accumulated Depreciation -24K Total Assets: 1,352,000 *You got that part exactly right! Liabilities: Notes payable (long term) 280K Accounts payable 92K Total Liabilities: 372,000 Equity: Paid-In capital 80K Retained Earnings 900K Total Equity: 980,000 Assets 1,352,000 = Liabilities 372,000 + Equity 980,000 You can see this balances, which means we have it right (probably at least) it can still be wrong if it balances...but this is right don't worry. Current Assets/Liabilities - this is just stuff that's going to happen in the next 12 months, from this list here are the current assets/liabilities I found Current Assets: (I excluded land and equipment, we should expect to use these past just 1 year) Cash 144K Inventory 840K Accounts Receivable 192K Total Current Assets: 1,176,000 Current Liabilities: (I excluded long term notes payable, they told it was long term or past 1 year) Accounts Payable 92K Total Current Liabilities 92,000 Current Assets 1,176,000 - Current Liabilities 92,000 = Working Capital of 1,084,000 On to B. Earnings from Operations I believe your text book is referring to like "normal operations here" which is probably moving a bit too quickly for an introductory accounting course, here it goes anyway... Income from Normal Operations *I realize this gives more than your problem, this is just how I learned it Net Sales -Cost of Sales = Gross margin -Selling expenses: General/Admin, Sales Commissions, etc. -Depreciation expense =income from operations*** What you're looking for in part B here! +Other revenues and gains: interest income, gain on sales of assets, etc. -Other expenses and losses: interest expense, loss on sale of assets, etc. =income before tax -tax = Net income Using this formula...Sales - Cost of Goods sold - Selling expenses - depreciation = Operating Income +Sales: 2,480,000 -Cost of Goods Sold: 1,760,000 -Rent Expense: 72,000 -Depreciation Expense: 12,000 =Operating Income of 636,000*** To get net income we have to keep taking some stuff out of Operating Income The reason these are different are because accountants consider certain expenses not part of the "normal operations" like interest expense, tax expense +Operating Income: 636,000 -Interest Expense: 36,000 -Tax Expense: 240,000 =Net Income of 360,000 B2. the average tax rate. Well this is quite easy but probably not explained well. The average tax rate is just the ... Taxes / Income before tax Here we have Income Before Tax expense = 360,000+240,000 = 600,000 Taxes: 240,000 240,000/600,000 = Average Tax rate is 40% C. You will need to know this basic accounting formula. I actually remember stuff like this with a mnemonic "BASE" Beginning Balance Additions Subtractions =Ending Balance Simple, Yes! but it will help you through problems like this Beginning Balance for Retained earnings Additions: Net Income + 360,000 Subtractions: Dividends -256,000 =Ending Balance for Retained Earnings 900,000 We have to work backwards here to get to the Beginning Balance BB + 360,000 - 256,000 = 900,000 BB + 104,000 = 900,000 BB = 900,000 - 104,000 Beginning Balance of Retained Earnings 796,000 There you have it! I'm available for additional help at nszucs@kent.edu or even a call if you wanted some tutoring help. Goodluck!
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