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.