Note: This may be completed with Excel, The T-Account Tool or manually. It is an independent assignment.
1. Record the following entries for year 1:
a. The corporation sells $55,000 of stock (1,000 shares).
b. The corporation pays $6,000 for a six-year lease.
c. The corporation purchases $1,700 of supplies for cash.
d. The corporation buys $10,600 of inventory on account.
e. The corporation buys $5,000 of equipment for $3,000 cash and $2,000 notes payable.
f. The corporation pays the vendor bill in (d).
g. The corporation buys $4,500 of inventory on account again.
h. The corporation pays the stockholders $3,000 for dividends.
i. The corporation has cash sales of $18,000 and credit sales of $2,000. The inventory cost is $9,000.
j. The corporation pays $200 for consulting expense.
k. The corporation pays $300 for advertising expense.
l. The corporation pays $2,200 for salaries expense.
m. The corporation pays $250 for utilities expense.
n. The corporation has $700 of supplies left.
o. The corporation used one year of the lease.
p. The equipment "wore out" by $500.
q. The corporation owes (hasn't paid yet) interest of $100 for the notes payable.
r. The company is in a 10% tax bracket and accrues now for taxes it will pay later.
2. Prepare the financial statements for year 1. Include a Trial balance. Remember to carry the beginning balances forward in the permanent accounts as the first Year 2 transaction before you begin the year 2 transactions below.
3. Record the following entries for year 2:
a. The corporation pays the accounts payable balance from year 1.
b. The corporation pays the interest payable from year 1.
c. The corporation pays the income tax payable from year 1.
d. The corporation receives the accounts receivable balance from year 1.
e. The corporation buys additional inventory for $8,000 on account.
f. The corporation has cash sales of $25,000. The inventory cost is $11,000.
g. The corporation pays $250 for consulting expense.
h. The corporation pays $325 for advertising expense.
i. The corporation pays $2,500 for salaries expense.
j. The corporation pays $275 for utilities expense.
k. The corporation has $100 of supplies left.
l. The corporation used one year of the lease.
m. The equipment "wore out" by $500.
n. The corporation owes (hasn't paid yet) interest of $100 for the notes payable.
o. The company is in a 10% tax bracket and will pay the income taxes later.
4. Prepare the financial statements for year 2. Include a trial balance.
5. Prepare a vertical and horizontal analysis of the income statement and balance sheet for both years.
6. For each analysis prepared in #5, discuss significant changes that have occurred.
7. Calculate the following ratios for year 2 ONLY:
a. Current ratio
b. Total Asset Turnover
c. Net Profit Margin (Return on Sales)
d. Return on Equity
e. Return on Assets
f. Inventory Turnover
g. Debt to Equity Ratio
h. Times Interest Earned (Interest Coverage ratio)
8. Use the Mergent data from Target (example in class) to explain how the ratio results in #7 are doing compared to the industry averages (peer mean). Be sure to attach a copy of the industry guide ratios you printed from Mergent.