Reference no: EM131824459
Financial Accounting
The Wiley Department Store is located near the Village shopping mall. At the close of the year ended December 31, 2007, the following accounts appeared in two of its trial balances.
Trial Balances
|
Unadjusted
|
Adjusted
|
Difference Increase/ (Decrease)
|
|
|
|
|
|
Accounts Payable
|
$89,300
|
$89,300
|
$0
|
|
Accounts Receivable
|
50,300
|
50,300
|
0
|
|
Accumulated Depreciation-Building
|
42,100
|
52,500
|
10,400
|
|
Accumulated Depreciation-Equipment
|
29,600
|
42,900
|
13,300
|
|
Building
|
190,000
|
190,000
|
0
|
|
Cash
|
23,000
|
23,000
|
0
|
|
Depreciation Expense-Building
|
|
10,400
|
10,400
|
|
Depreciation Expense-Equipment
|
|
13,300
|
13,300
|
|
Equipment
|
110,000
|
110,000
|
0
|
|
Freight-in
|
3,600
|
3,600
|
0
|
|
Insurance Expense
|
|
7,200
|
7200
|
|
Interest Expense
|
3,000
|
11,000
|
8,000
|
|
Interest Payable
|
|
8,000
|
8,000
|
|
Interest Revenue
|
4,000
|
4,000
|
0
|
|
Merchandise Inventory (Beginning Inventory)
|
40,500
|
40,500
|
0
|
|
Mortgage Payable
|
80,000
|
80,000
|
0
|
|
Office Salaries Expense
|
32,000
|
32,000
|
0
|
|
Prepaid Insurance -
|
9,600
|
2,400
|
(7,200)
|
|
Property Taxes Payable
|
|
4,800
|
4,800
|
|
Purchases
|
462,000
|
462,000
|
0
|
|
Purchase Discounts
|
12,000
|
12,000
|
0
|
|
Purchase Returns and Allowances
|
6,400
|
6,400
|
0
|
|
Sales Salaries Expense'
|
76,000
|
76,000
|
0
|
|
Sales
|
618,000
|
618,000
|
0
|
|
Sales Commissions Expense
|
11,000
|
14,500
|
3,500
|
|
Sales Commissions Payable
|
|
3,500
|
3500
|
|
Sales Returns and Allowances
|
8,000
|
8,000
|
0
|
|
Common Stock
|
150,000
|
150,000
|
0
|
|
Retained Earnings
|
26,600
|
26,600
|
0
|
|
Dividends
|
28,000
|
28,000
|
0
|
|
Property Taxes Expense
|
|
4,800
|
4800
|
|
Utilities Expense
|
11,000
|
11,000
|
0
|
Analysis reveals the following additional data:
1. A physical inventory was conducted for year ended December 31, 2007 and the inventory was valued at $70,000.
2. Insurance expense and utilities expense are, 60% selling and 40% administrative.
3. $20,000 of the mortgage payable is due for payment next year.
4. Depreciation on the building and property tax expense are administrative expenses; depreciation on the equipment is a selling expense.
5. The beginning balance of accounts receivable is $64,750.
6. The amount of total assets at the beginning of the year is $321,725.
Instructions
1) Journalize the adjusting entries.
2) Prepare a multiple-step income statement and a retained earnings statement for the year and a classified balance sheet as of December 31, 2007.
3) Journalize the closing entries.
4) Prepare a post-closing trial balance.
5) 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
6) Based on the ratios computed in 5) 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.