Question

Required information On January 1, 2021, the general ledger of Dynamite Fireworks includes the following account balances: Credit Accounts Cash Accounts Receivable Supplies Land Accounts Payable Common Stock Retained Earnings Totals Debit $ 24,400 5,800 3,700 56,000 $ 3,800 71,000 15, 100 $ 89,900 $ 89,900 During January 2021, the following transactions occur: January 2 Purchase rental space for one year in advance, $7,800 ($650/month). January 9 Purchase additional supplies on account, $4,100. January 13 Provide services to customers on account, $26, 100. January 17 Receive cash in advance from customers for services to be provided in the future, $4,300. January 20 Pay cash for salaries, $12,100. January 22 Receive cash on accounts receivable, $24,700. January 29 Pay cash on accounts payable, $4,600. 7. Analyze the following features of Dynamite Fireworks' financial condition: a. What is the amount of profit reported for the month of January? Income statement b. Calculate the ratio of current assets to current liabilities at the end of January. Current ratio EX

Answer 1

INCOME STATEMENT

FOR THE MONTH OF JANUARY

Revenues:
Service revenue		$26,100
Expenses:
Supplies ($3,700+$4,100)	$7,800
Rental space at $650 per month	650
Salaries	12,100
Total expenses		(20,550)
Net income		$5,550

Current assets and current liabilities:

January 1	Cash balance	$24,400
January 2	Purchase rental space	(7,800)
January 17	Cash received in advance from customers	4,300
January 20	Salaries paid	(12,100)
January 24	Received cash on account receivable	24,700
January 29	Pay cash on account payable	(4,600)
January 31	Cash balance	$28,900
January 1	Account receivable	$5,800
January 13	Provide services on account	26,100
January 24	Received cash on account receivable	(24,700)
January 31	Account receivable	7,200
January 1	Supplies	$3,700
January 9	Purchase additional supplies	4,100
January 31	Supplies (assume all supplies are consumed)	nil
January 2	Rent prepaid ($650*11 months)	7,150
	CURRENT LIABILITIES
January 1	Account Payable	$3,800
January 9	Purchase supplies on account	4,100
January 29	pay on account payable	(4,600)
January 31	Account Payable	3,300
January 17	Advance received from customer	$4,300

Total current assets = Cash + Account receivable + Supplies + Prepaid rent

= $(28,900+7,200+0+7,150)

= $43,250

Total current liabilities = Account Payable + Advance received from customer

= $ (3,300+4,300)

= $7,600

Current Ratio = Current assets / Current liabilities

= 43,250/7,600

= 5.7:1

Thank you :)