Analyzing the Effects of Transactions Using T-Accounts, Preparing Financial Statements, and Evaluating the Total Asset Turnover Ratio as a Manager (P3-4)
Alpine Stables. Inc., was established in Denver. Colorado, on April I. 2011. The company provides stables, care for animals, and grounds for riding and showing horses. You have been hired as the new assistant controller. The following transactions for April 201 1 are provided for your review.
a. Received contributions from five investors of $60.000 in cash ($12,000 each), a barn valued at S100.000. land valued at 590,000, and supplies valued at S12.000. Each investor received 3.000 shares of stock.
b. Built a small barn for $62,000. The company paid half the amount in cash on April I, 2011, and signed a three-year note payable for the balance.
c. Provided 535,260 in animal care services for customers, all on credit.
d. Rented stables to customers who cared for their own animals; received cash of $13,200.
e. Received from a customer $2,400 to board her horse in May, June, and July (record as unearned revenue).
f. Purchased hay and feed supplies on account for $3,810 to be used in the summer.
g. Paid 51,240 in cash for water utilities incurred in the month.
h. Paid $2,700 on accounts payable for previous purchases.
i. Received $10,000 from customers on accounts receivable.
j. Paid $6,000 in wages to employees who worked during the month.
k. At the end of the month, purchased a two-year insurance policy for $3,600.
l. Received an electric utility bill for $1,800 for usage in April; the bill will be paid next month.
m. Paid $100 cash dividend to each of the investors at the end of the month.
Required:
1. Set up appropriate T-accounts. All accounts begin with zero balances.
2. Record in the T-accounts the effects of each transaction for Alpine Stables in April, referencing each transaction in the accounts with the transaction letter. Show the ending balances in the T-accounts.
3. Prepare financial statements at the end of April (income statement, statement of stockholders" equity, and balance sheet).
4. Write a short memo to the five owners offering your opinion on the results of operations during the first month of business.
5. After three years in business, you are being evaluated for a promotion to chief financial officer. One measure is how efficiently you have managed the assets of the business. The following annual data are available:
| 2013* | 2012 | 2011 |
Total assets | $480.000 | 5320,000 | 5300.000 |
Total liabilities | 125.000 | 28,000 | 30.000 |
Total stockholders' equity | 355,000 | 292.000 | 270.000 |
Total revenues | 450,000 | 400,000 | 360.000 |
Net income | 50.000 | 30.000 | (10.000) |
*Al the end of 2013, Alpine Stables decided to build an indoor riding arena for giving lessons year-round. The company borrowed construction funds from a local bunk in 201 J. and the arena was opened in early 2014. | |||
Compute the total asset turnover ratio for 2012 and 2013 and evaluate the results. Do you think you should be promoted? Why?
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