Accounts from Max Company’s 12/31/16 adjusted pre-closing trial balance appear b

Question

Accounts from Max Company’s 12/31/16 adjusted pre-closing trial balance appear below: Accounts Payable 10,000 Accounts Receivable 22,500 Accumulated Depreciation - Equipment 43,000 Allowance for Doubtful Accounts 3,000 Bad Debt Expense 1,100 Bonds Payable (due 12/31/18) 53,000 Cash 31,800 Common Stock 42,200 Cost of Goods Sold 97,000 Depreciation Expense 2,300 Equipment 122,900 Interest Expense 3,800 Merchandise Inventory 39,000 Prepaid Rent 7,100 Rent Expense 15,800 Retained Earnings (beginning balance) 18,000 Salaries and Wage Expense 55,100 Salaries Payable 4,200 Sales Revenue 225,000 First classify the accounts above (asset, liability, equity, revenue, expense). Then calculate net income and determine the ending balance of retained earnings. Finally prepare a classified balance sheet (current vs long term) using the information above. Using balance sheet, answer the questions below. 1. What is the total amount reported as Current Assets as of 12/31/16? 2. What is the total amount reported as Total Liabilities as of 12/31/16? 3. What is the total amount report as Total Stockholders’ Equity as of 12/31/16? 4. Calculate the Debt to Equity ratio as of 12/31/16 and briefly discuss what this means. 5. Calculate the Current Ratio as of 12/31/16 and briefly discuss what this means.

Explanation / Answer

Account Amt Type Sales Revenue            225,000 Revenue Cost Of Goods Sold             97,000 Expense Salary & Wage expense             55,100 Expense Rent expense             15,800 Expense Depreciation Expense               2,300 Expense Bad debt expense               1,100 Expense Interest                 3,800 Expense Cash             31,800 Asset Accounts Receivable             22,500 Asset Allowance for Uncollectible A/cs             (3,000) Asset Inventory             39,000 Asset Prepaid Expenses(rent)               7,100 Asset Equipment          122,900 Asset Accumulated Depreciation(equipment)          (43,000) Asset Accounts Payable             10,000 Liability Salaries payable               4,200 Liability Long Term Bond Payable             53,000 Liability Common Stock             42,200 Equity Retained Earning          106,000 Equity Max Company Income Statement   for the priod ended 31.12.2016. Details Amt $ Sales Revenue            225,000 Cost Of Goods Sold             97,000 Gross Profit          128,000 Operating Expenses Salary & Wage expense             55,100 Rent expense             15,800 Depreciation Expense               2,300 Bad debt expense               1,100 Total Operating Expenses             74,300 Earning before Interest & Tax             53,700 Interest                 3,800 Net Income             49,900 Max Company Balance Sheet As On Dec 31.2016. Details Amt $ Assets Current Assets Cash             31,800 Accounts Receivable             22,500 Allowance for Uncollectible A/cs             (3,000) Inventory             39,000 Prepaid Expenses(rent)               7,100 Total Current Assets             97,400 Non Current Assets Fixed Assets Equipment          122,900 Accumulated Depreciation(equipment)          (43,000) Net Fixed Assets             79,900 Total Non Current Assets             79,900 Total Assets          177,300 Liabilities & Equities Current Liabilities Accounts Payable             10,000 Salaries payable               4,200 Total Current Liabilities             14,200 Non Current Liabilities Long Term Bond Payable             53,000 Total Non Current Liabilities             53,000 Total Liabilities             67,200 Stockholders' Equity Common Stock             42,200 Retained Earning             67,900 Total Stockholders' Equity          110,100 Total Liabilities & Equities          177,300 Positions as on 31.12.2016.        1 Total Current Asste on 31.12.2016.             97,400        2 Total Liabilities             67,200        3 Total Stockholders' Equity          110,100        4 Debt To equity =67200/110100=                 0.61 A debt to equity ratio less than 1 means that the firm is levered low and there is scope   to improve the leverage and get benefit of it.        5 Current Ratio=Current Asset/Current Liab=                 6.86 A high current ratio of 6.86 means that the   liquidity position of the firm is very comfortable and the current liabilities can be well served by current assets.

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