Reference no: EM1380454

The trial balance of the Parton Wholesale Company contained the following accounts at December 31, 2010 the end of the company's calendar year.

PARTON WHOLESALE COMPANY
Trial Balance
31-Dec-10
	Debit		Credit
Cash	$      34,400
Accounts Receivable	36,600
Merchandise Inventory (Beginning)	62,400
Land	92,000
Buildings	197,000
Accumulated Depreciation-Buildings			$      54,000
Equipment	83,500
Accumulated Depreciation-Equipment			42,400
Notes Payable			50,000
Accounts Payable			37,500
Common Stock			200,000
Retained Earnings			67,800
Dividends	10,000
Sales			886,100
Sales Discounts	4,600
Purchases	725,100
Purchase Discounts			16,000
Freight-in	12,400
Salaries Expense	69,800
Utilities Expense	9,400
Repair Expense	5,900
Gas and Oil Expense	7,200
Insurance Expense	3,500
	$  1,353,800		$  1,353,800

Adjustment data:

1. Depreciation is $10,000 on buildings and $9,000 on equipment. (Both are administrative expenses.)
2. Interest of $7,000 is unpaid on notes payable at December 31.

Other data:

1. Merchandise inventory on hand at December 31, 2010 is $90,000.
2. Salaries are 80% selling and 20% administrative.
3. Utilities expense, repair expense, and insurance expense are 100% administrative.
4. $15,000 of the notes payable are payable next year.
5. Gas and oil expense is a selling expense.
6. The beginning balance of accounts receivable is $34,750.
7. The amount of total assets at the beginning of the year is $469,225.

Instructions

1) Journalize the adjusting entries.

2) Prepare a multiple-step income statement and a retained earnings statement for the year ended, as well as a classified balance sheet as of December 31, 2010.

3) Prepare the following ratios and show all support for your 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

4) Based on the ratios computed in 3) 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.

• Would you lend money to this company for the long term?

• Comment on the ability of the company to collect its receivables and mange inventory.

	2007	2008	2009	Industry Average
Liquidity
Current	2.39	2.68	2.90	3.12
Quick	1.10	1.16	1.21	1.56
Working Capital	$  98,750.00	$ 100,450.00	$ 103,000.00	$ 110,000.00
Leverage
Debt to Total Assets (%)	20.97%	21.98%	22.89%	20.89%
Times Interest Earned	8.75	9.12	9.56	10.22
Activity
Inventory Turnover (sales)	8.21	9.91	10.12	10.52
Fixed Asset Turnover	3.43	3.51	3.59	3.64
Total Asset Turnover	2.15	2.20	2.25	2.56
Average Collection Period (days)	14.95	14.69	14.42	14.28
Accounts Receivable Turnover	24.08	24.50	24.97	25.21
Days in Inventory	44.46	36.83	36.07	43.21
Profitability
Gross Profit Margin (%)	21.10%	22.50%	24.03%	24.56%
Net Profit (%)	6.89%	7.25%	7.89%	8.03%
Return on Total Assets (%)	15.50%	16.10%	16.24%	16.07%
Return on Equity (%)	20.15%	21.89%	22.15%	22.06%
Payout Ratio (%)	15.10%	15.84%	16.09%	16.86%