Problem Classified Balance Sheet
The following balance sheet items, listed in alphabetical order, are available from the records of
Ruth Corporation at December 31, 2014:
Accounts payable $ 18,255 Income taxes payable $ 6,200
Accounts receivable 23,450 Interest payable 1,500
Accumulated depreciation-automobiles 22,500
Inventory 45,730
Land 250,000
Accumulated depreciation-buildings 40,000
Long-term investments 85,000
Automobiles 112,500
Notes payable, due June 30, 2015 10,000
Office supplies 2,340
Bonds payable, due December 31, 2018 160,000
Paid-in capital in excess of par value 50,000
Patents 40,000
Buildings 200,000 Prepaid rent 1,500
Capital stock, $10 par value 150,000
Retained earnings 311,095
Cash 13,230
Salaries and wages payable 4,200
Questions
1. Prepare in good form a classified balance sheet as of December 31, 2014.
2. Compute Ruth's current ratio.
3. On the basis of your answer to (2), does Ruth appear to be liquid? What other information do you need to fully answer that question?
Problem 2 Single Step Income Statement
The following income statement items, arranged in alphabetical order, are taken from the records of Shaw Corporation for the current year:
Advertising expense $ 1,500
Interest expense $ 1,400
Commissions expense 2,415
Interest revenue 1,340
Cost of goods sold 29,200
Rent revenue 6,700
Depreciation expense-office building 2,900
Salaries and wages expense-office 12,560
Income tax expense 1,540
Sales revenue 48,300
Insurance expense-salesperson's auto 2,250
Supplies expense-office 890
Questions
1. Prepare a single-step income statement for the current year.
2. What weaknesses do you see in this form for the income statement?
Problem Multiple-Step Income Statement and Profit Margin
Refer to the list of income statement items in Problem 2-6. Assume that Shaw Corporation classifies all operating expenses into two categories: (1) selling and (2) general and administrative.
Questions
1. Prepare a multiple-step income statement for the current year.
2. What advantages do you see in this form for the income statement?
3. Compute Shaw's profit margin.
4. Comment on Shaw's profitability. What other factors need to be taken into account to assess Shaw's profitability?