The trial balance of the Elker Fashions Incorporated contained the following acc
ID: 2587567 • Letter: T
Question
The trial balance of the Elker Fashions Incorporated contained the following accounts at December 31, 2008 the end of the company’s calendar year.
Elker Fashions Incorporated Trial Balance December 31, 2008
Debit Credit
Adjustment data:
Depreciation is $12,000 on buildings and $10,000 on equipment. (Both are administrative
expenses.)
Interest of $9,000 is unpaid on notes payable at December 31.
Other data:
1. The beginning balance of accounts receivable is $26,750.
The amount of total assets at the beginning of the year is $378,231.
Merchandise inventory on hand at December 31, 2008 is $80,000.
Salaries are 70% selling and 30% administrative.
$12,000 of the notes payable are payable next year.
Gas and oil expense is a selling expense.
Utilities expense, repair expense, and insurance expense are 100% administrative.
Instructions
1) Journalizetheadjustingentries.
2) Prepareamultiple-stepincomestatementandaretainedearningsstatementfortheyear
and a classified balance sheet as of December 31, 2008.
3) Journalizetheclosingentries.
4) Prepareapost-closingtrialbalance.
5) Preparethefollowingratiosandshowallsupportforyourcomputations:
(No partial credit given without work/computations)
a) Current Ratio
b) Quick Ratio
c) Working Capital
d) Accounts Receivable Turnover e) Average Collection Period
f) Inventory Turnover
g) Days in Inventory
h) Debt to Total Assets Ratio
i) Gross Profit Ratio
j) Profit Margin Ratio
k) Return on Assets Ratio
l) Asset Turnover Ratio
6) Based on the ratios computed in 5) above, answer the following questions and use the financial statement ratios to support your answers where appropriate:
Do you feel that the company is able to meet its current and long term obligations as they become due?
Comment on the profitability of the company with respect to the various profitability ratios that you computed.
cash 26,500 accounts receivable 42,200 merchandise inventory (beginning) 52,500 land 94,000 buildings 183,000 accum. depreciation-buildings 56,400 equipment 84,500 accum. depreciation-equipment 42,400 notes payable 40,000 accounts payable 37,500 common stock 205,500 retained earnings 67,800 dividends 11,000 sales 865,800 sales discount 6,100 purchases 720,000 purchase discounts 16,400 freight in 12,900 salaries expense 70,700 utilities expense 11,400 repair expense 5,900 gas and oil expense 7,600 insurance expense 3500 1,331,800 1,331,800 Industry Average 2005 2006 2007 S 96,750.00 $99,850.00 1 1.700.00 109,000.00 Debt to Total Assets (%) Times Interest Eamod 198496 9 2 Average Collection Period Accounts Rocoivable Turnover Gross Profit Margin (%) Return on Total Assets (%) Return on Equity (%) 2 tRatioExplanation / Answer
a) Adjusting entries 1 Depreciation expense 22000 Accumulated depreciation building 12000 Accumulated depreciqation equipment 10000 2 Interest expense 9000 Interest payable 9000 b) Income statement Sales 865800 Sales discount -6100 Net sales 859700 Beginning 52500 Purchase 720000 Purchase discount -16400 Freight in 12900 Ending inventory -80000 Cost of goods sold 689000 Gross profit 170700 Admin and selling expense Salaries expense 70700 Utilities expense 11400 Repair expense 5900 Gas and oil expense 7600 Insurance expense 3500 Depreciation expense 22000 Total operating expense 121100 Net operating income 49600 Non operating expense and gains Interest expense -9000 Net income 40600 c) Retained earnings statement Beginning retained earnings 67800 Add Net income 40600 Less Dividend -11000 Ending retained earnings 97400 d) Assets Cash 26500 Accounts receivable 42200 Merchandise inventory 80000 Total current assets 148700 Property plant and equipment Land 94000 Building 183000 Accumulated depreciation building -68400 Equipment 84500 Accumulated depreciation equipment -52400 Total property plant and equipment 240700 Total assets 389400 Liabilities and stockholders equity Liabilities Notes payable 40000 Accounts payable 37500 Interest payable 9000 Total liabilities 86500 Stockholders equity Common stock 205500 Retained earnings 97400 Total stockholders equity 302900 Total liabilities and stockholders equity 389400 c) Closing entries Sales 859700 Income summary 859700 Income summary 819100 Cost of goods sold 689000 Salaries expense 70700 Utilities expense 11400 Repair expense 5900 Gas and oil expense 7600 Insurance expense 3500 Depreciation expense 22000 Interest expense 9000 Income summary 40600 Retained earnings 40600 retained earnings 11000 Dividend 11000 D) Post closing trial balance Debit Credit Cash 26500 Accounts receivable 42200 Merchandise inventory 80000 Land 94000 Building 183000 Accumulated depreciation building 68400 Equipment 84500 Accumulated depreciation equipment 52400 Notes payable 40000 Accounts payable 37500 Interest payable 9000 Common stock 205500 Retained earnings 97400 Total 510200 510200
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