Part A:
Requirement 1: Determine the impact of transactions on accounting equation as follows
Requirement 2: Prepare the income statement as follows
W Inc | ||
Income Statement | ||
For the Month Ended January 31, 2018 | ||
Particulars | Amount | Amount |
Service Revenue ($6,900 + $1,450) | $8,350 | |
Deduct: Operating Expenses | ||
Salaries Expense | $3,500 | |
Rent Expense | $1,500 | |
Insurance Expense | $350 | |
Total Operating Expenses | $5,350 | |
Operating income | $3,000 | |
Other Income / (Expenses) | ||
Interest Expense | ($45) | |
Net Income | $2,955 |
Requirement 3: Prepare the statement of stockholders' equity as follows
W Inc | |||
Statement of Stockholders' Equity | |||
For the Month Ended January 31, 2018 | |||
Particulars | Common Stock | Retained Earnings | Total |
Beginning Balance | $8,500 | $10,000 | $18,500 |
Add: Net income | $2,955 | $2,955 | |
Deduct: Dividends | ($4,500) | ($4,500) | |
Ending Balance | $8,500 | $8,455 | $16,955 |
Requirement 3: Prepare the balance sheet as follows
W Inc. | ||
Balance Sheet | ||
January 31, 2018 | ||
Assets | Amount | Amount |
Current Assets: | ||
Cash | $4,955 | |
Accounts Receivable | $13,100 | |
Total Current Assets | $18,055 | |
Property, Plant and Equipment | ||
Machinery | $8,500 | |
Total Assets | $26,555 | |
Liabilities and Stockholders' Equity | ||
Current Liabilities: | ||
Accounts Payable | $2,100 | |
Notes Payable | $7,500 | |
Total Liabilities | $9,600 | |
Stockholders' Equity | ||
Common Shares | $8,500 | |
Retained Earnings | $8,455 | |
Total Stockholders' Equity | $16,955 | |
Total Liabilities and Stockholders' Equity | $26,555 |
Part B:
Requirement a: Classify the accounts as follows
Requirement b: Prepare the following financial statements
Requirements c:
1. Total amount of current assets = $74,650
2. Total amount of reported liabilities = $53,200
3. Total stockholders' equity = $103,750
4. Compute debt to equity ratio as follows
Debt to equity ratio = Total liabilities ÷ Stockholders equity
= $53,200 ÷ $103,750
= 0.51 times
Debt to equity ratio indicates the percentage of operations financed by debt against the stockholders equity.
5. Compute current ratio as follows
Current ratio = Current Assets ÷ Current Liabilities
= $74,650 ÷ $12,200
= 6.12 times
Current ratio is used to determine the ability of the company to pay off short term debts as they fall due.
In this problem set, you will be assessing the impact of economic events on the financial...
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