The question requires preparation of Financial Statements.
i. Income Statement :
Service Revenue 68,400
Advertising Expense 1,750
Salaries and Wages Expense 47,800
Utilities Expense 5,400
Supplies Expense 2,600
Depreciation Expense 8,400
Interest Expense 1,100
Rent Expense 1,800
Total Expense 68,850
Net Loss - 450
ii. Financial Statement :
Assets :
Cash 10,450
Accounts Receivable 16,800
Prepaid Rent 7,600
Supplies 1,500
Inventory 6,400
Buildings 125,000
Equipment 32,000
Total Assets 199,750
Liabilities :
Accumulated Depreciation – Equipment 7,200
Accumulated Depreciation – Buildings 21,000
Accounts Payable 13,900
Notes Payable (due 2024) 49,000
Unearned Service Revenue 9,450
Equity :
Share Capital 76,000
Retained Earnings 31,650
Dividends 8,000
Debit Net Loss 450
Debit Total Equity and Liabilities 199,750
b. Ratio Analysis :
i Current Ratio :
Current Assets / Current Liabilities 1.7 times
ii Acid Test Ratio
Current Assets - Inventory / Current Liabilities 1.49 times
iii Account receivable turnover [Account Receivable / Sales ] * 365 84 days
iv Average collection period 365 / Average receivable turnover 4.29
v Profit Margin
Profit / Sales - 0.6%
vi Debt to total assets
Total Debt / Total Asset 1.98 times
vii Return on Asset Operating Income / Total Asset 0.0023
viii Times interest Earned EBIT / Interest Expense 0.4 times
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