Question

Please follow the instructions in an Excel spreadsheet. I will thumbs up the answer, thanks.

MGMT FFAC Chapter 2: Exercise These items are taken from the accounting records of Entity A for 2020. Accounts payable Accounts receivable Accumulated depreciation equipment Advertising expense Cash Common stock Copyright Depreciation expense Dividends Equipment Ford Motor Co. stock (long-term investment) Insurance expense Notes payable (due 2028) Prepaid insurance Rent expense Retained eamings (beginning) Salaries and wages expense Salaries and wages payable Service revenue Supplies Supplies expense $ 10,000 11,000 38,000 21,000 4,000 90,000 4,000 12,000 15,000 210,000 6,000 3,000 70,000 6,000 17,000 12,000 34,000 3,000 130,000 4,000 6,000 Instructions In good form (include headings), prepare an income statement, a retained camings statement, and a classified balance sheet as of December 31, 2020. Then compute the current ratio and the debt-to-total-assets ratios identifying which is a measure of liquidity and which is a measure of solvency.

Answer 1

($) 13000 Entity A Income statement For the year ending on December 31, 2020 Service Revenue Less: Expenses Supplies 6000 Wages Expenses 34000 Rent Expenses 17000 Insurance Expenses 3000 Advertising Expenses 21000 Depreciation Expenses 12000 Total operating expensrs Operating income Less: Dividend paid Balance carried to retained earnings 93000 37000 -15000 22000 Entity A Income statement For the year ending on December 31, 2020 Retained earnings at the beginning Add: transfer from the income statement Retained earnings at the end ($) 12000 22000 34000

ill E Entity A Balance sheet As at December 31, 2020 Assets Current Assets Cash & Mercantile Securities Accounts Receivables Prepaid Insurance Inventories Total Current Assets 14000 11000 6000 4000 35000 172000 207000 Fixed Assets Property Plant and equipment (net) Total Assets Liabilities and Shareholder's Equity Current liabilities Salaries & Wages Payable 3000 Accounts payable 10000 Total Current Liabilities 13000 70000 Long Term Debts due 2020 Shareholders' equity Common Stock Retained Earning Total Shareholders Equity Total Liabilities and Shareholders equity 90000 340000 124000 207000

Calculation of Ratios: Current Current Ratio Assets/Current 35000/13000 2.69 Liabilities Total Debt/Total (13000+70000)/ Debt to Assets Ratio 40.10 Assets 207000 Net Income/Avg. No EPS 37000/10000 1 $ 3.70 of shares Current Ratio is the measure of liquidity whereas Debt to equity ratio is a measure of solvency.