Connect - Managerial Accounting Connect #0 Review

Questions 1-3 [The following information applies to the questions displayed below.]

Denzel Brooks opens a Web consulting business called Venture Consultants and completes the following transactions in March.

March 1	Brooks invested $150,000 cash along with $22,000 in office equipment in the company in exchange for common stock.
2	The company prepaid $6,000 cash for six months’ rent for an office. (Hint: Debit Prepaid Rent for $6,000.)
3	The company made credit purchases of office equipment for $3,000 and office supplies for $1,200. Payment is due within 10 days.
6	The company completed services for a client and immediately received $4,000 cash.
9	The company completed a $7,500 project for a client, who must pay within 30 days.
12	The company paid $4,200 cash to settle the account payable created on March 3.
19	The company paid $5,000 cash for the premium on a 12-month insurance policy. (Hint: Debit Prepaid Insurance for $5,000.)
22	The company received $3,500 cash as partial payment for the work completed on March 9.
25	The company completed work for another client for $3,820 on credit.
29	The company paid $5,100 cash in dividends.
30	The company purchased $600 of additional office supplies on credit.
31	The company paid $500 cash for this month’s utility bill.

1.

Required:
1.	Prepare general journal entries to record these transactions using the following titles: Cash (101); Accounts Receivable (106); Office Supplies (124); Prepaid Insurance (128); Prepaid Rent (131); Office Equipment (163); Accounts Payable (201); Common Stock (307); Dividends (319); Services Revenue (403); and Utilities Expense (690).

Date	General Journal	Debit	Credit
Mar 01	Cash	150,000
	Office equipment	22,000
	Common stock		172,000
Mar 02	Prepaid rent	6,000
	Cash		6,000
Mar 03	Office equipment	3,000
	Office supplies	1,200
	Accounts payable		4,200
Mar 06	Cash	4,000
	Services revenue		4,000
Mar 09	Accounts receivable	7,500
	Services revenue		7,500
Mar 12	Accounts payable	4,200
	Cash		4,200
Mar 19	Prepaid insurance	5,000
	Cash		5,000
Mar 22	Cash	3,500
	Accounts receivable		3,500
Mar 25	Accounts receivable	3,820
	Services revenue		3,820
Mar 29	Dividends	5,100
	Cash		5,100
Mar 30	Office supplies	600
	Accounts payable		600
Mar 31	Utilities expense	500
	Cash		500

2.

2.	Open the ledger accounts for the account titles referred in part 1 and post the journal entries from part 1 to the ledger accounts.

3.

3.	Prepare a trial balance as of the end of March.

	VENTURE CONSULTANTS Trial Balance March 31 Debit Credit Cash $136,700 Accounts receivable 7,820 Office supplies 1,800 Prepaid insurance 5,000 Prepaid rent 6,000 Office equipment 25,000 Accounts payable 600 Common stock 172,000 Dividends 5,100 Services revenue 15,320 Utilities expense 500 Totals $187,920 $187,920

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Questions 4-5

[The following information applies to the questions displayed below.]

The accounting records of Nettle Distribution show the following assets and liabilities as of December 31, 2014 and 2015.

December 31	2014	2015
Cash	$  64,300	$  15,640
Accounts receivable	26,240	19,390
Office supplies	3,160	1,960
Office equipment	44,000	44,000
Trucks	148,000	157,000
Building	0	80,000
Land	0	60,000
Accounts payable	3,500	33,500
Note payable	0	40,000

Late in December 2015, the business purchased a small office building and land for $140,000. It paid $100,000 cash toward the purchase and a $40,000 note payable was signed for the balance. Mr. Nettle had to invest $35,000 cash in the business (in exchange for common stock) to enable it to pay the $100,000 cash. The business also pays $3,000 cash per month for dividends.

4.

Required:
1.	Prepare balance sheets for the business as of December 31, 2014 and 2015. (Hint: Report only total equity on the balance sheet and remember that total equity equals the difference between assets and liabilities.)

	NETTLE DISTRIBUTION Balance Sheet December 31, 2014 Assets Liabilities Cash $64,300 Accounts payable $3,500 Accounts receivable 26,240 Office supplies 3,160 Trucks 148,000 Equity Office equipment 44,000 Total equity 282,200 Total assets $285,700 Total liabilities and equity $285,700

	NETTLE DISTRIBUTION Balance Sheet December 31, 2015 Assets Liabilities Cash $15,640 Accounts payable $33,500 Accounts receivable 19,390 Note payable 40,000 Office supplies 1,960 Trucks 157,000 Office equipment 44,000 Total liabilities 73,500 Building 80,000 Equity Land 60,000 Total equity 304,490 Total assets $377,990 Total liabilities and equity $377,990

5.

2.	By comparing equity amounts from the balance sheets and using the additional information presented in this problem, prepare a calculation to show how much net income was earned by the business during 2015.

	Equity, December 31, 2014 $282,200 Add: Stock issuances 35,000 Add: Net income 23,290 340,490 Less: Dividends (36,000) Equity, December 31, 2015 $304,490

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Questions 6-7

[The following information applies to the questions displayed below.]

Yi Min started an engineering firm called Min Engineering. He began operations and completed seven transactions in May, which included his initial investment of $18,000 cash. After those seven transactions, the ledger included the following accounts with normal balances.

Cash	$	37,641
Office supplies		890
Prepaid insurance		4,600
Office equipment		12,900
Accounts payable		12,900
Common stock		18,000
Dividends		3,329
Engineering fees earned		36,000
Rent expense		7,540

6.

Required:
1.	Prepare a trial balance for this business as of the end of May.

	MIN ENGINEERING Trial Balance May 31 Debit Credit Cash $37,641 Office supplies 890 Prepaid insurance 4,600 Office equipment 12,900 Accounts payable 12,900 Common stock 18,000 Dividends 3,329 Engineering fees earned 36,000 Rent expense 7,540 Totals $66,900 $66,900

7.

3.	Prepare a report of cash received and cash paid showing an ending Cash balance of $37,641. (Hint: Analyze the accounts and their balances and prepare a list that describes each of the seven most likely transactions and their amounts.)

	Report of Cash Received and Paid Cash received Owner investment $18,000 Engineering fees 36,000 Total cash received $54,000 Cash paid Office supplies 890 Insurance premium 4,600 Dividends 3,329 Rent 7,540 Total cash paid 16,359 Ending balance $37,641

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8.

Selected year-end financial statements of Cabot Corporation follow. (All sales were on credit; selected balance sheet amounts at December 31, 2014, were inventory, $48,900; total assets, $189,400; common stock, $90,000; and retained earnings, $22,748.)

CABOT CORPORATION Income Statement For Year Ended December 31, 2015
Sales	$	448,600
Cost of goods sold		297,250
Gross profit		151,350
Operating expenses		98,600
Interest expense		4,100
Income before taxes		48,650
Income taxes		19,598
Net income	$	29,052

  

CABOT CORPORATION Balance Sheet December 31, 2015
Assets				Liabilities and Equity
Cash	$	10,000		Accounts payable	$	17,500
Short-term investments		8,400		Accrued wages payable		3,200
Accounts receivable, net		29,200		Income taxes payable		3,300
Notes receivable (trade)*		4,500		Long-term note payable, secured
Merchandise inventory		32,150		by mortgage on plant assets		63,400
Prepaid expenses		2,650		Common stock		90,000
Plant assets, net		153,300		Retained earnings		62,800
Total assets	$	240,200		Total liabilities and equity	$	240,200

* These are short-term notes receivable arising from customer (trade) sales.

  

Required:

Compute the following: (1) current ratio, (2) acid-test ratio, (3) days' sales uncollected, (4) inventory turnover, (5) days' sales in inventory, (6) debt-to-equity ratio, (7) times interest earned, (8) profit margin ratio, (9) total asset turnover, (10) return on total assets, and (11) return on common stockholders' equity.(Do not round intermediate calculations.)

	(1) Current Ratio Choose Numerator: / Choose Denominator: = Current Ratio Current assets / Current liabilities = Current Ratio 2015: $86,900 / $24,000 = 3.6 to 1

	(2) Acid-Test Ratio Choose Numerator: / Choose Denominator: = Acid-Test Ratio Quick assets / Current liabilities = Acid-Test Ratio 2015: $52,100 / $24,000 = 2.2 to 1

	(3) Days Sales Uncollected Choose Numerator: / Choose Denominator: x Days = Days Sales Uncollected Current receivables / Net sales x 365 = Days Sales Uncollected 2015: $33,700 / $448,600 x 365 = 27.4 days

	(4) Inventory Turnover Choose Numerator: / Choose Denominator: = Inventory Turnover Cost of goods sold / Average inventory = Inventory Turnover 2015: $297,250 / $40,525 = 7.3 times

	(5) Days’ Sales in Inventory Choose Numerator: / Choose Denominator: x Days = Days’ Sales in Inventory Merchandise inventory / Cost of goods sold x 365 = Days’ Sales in Inventory 2015: $32,150 / $297,250 x 365 = 39.5 days

	(6) Debt-to-Equity Ratio Choose Numerator: / Choose Denominator: = Debt-to-Equity Ratio Total liabilities / Total equity = Debt-to-Equity Ratio 2015: $87,400 / $152,800 = 0.57 to 1

	(7) Times Interest Earned Choose Numerator: / Choose Denominator: = Times Interest Earned Income before tax + Interest expense / Interest expense = Times Interest Earned 2015: $48,650 + $4,100 / $4,100 = 12.9 times

	(8) Profit Margin Ratio Choose Numerator: / Choose Denominator: = Profit margin ratio Net income / Net sales = Profit margin ratio 2015: $29,052 / $448,600 = 6.5 %

	(9) Total Asset Turnover Choose Numerator: / Choose Denominator: = Total Asset Turnover Net sales / Average total assets = Total Asset Turnover 2015: $448,600 / $214,800 = 2.1 times

	(10) Return on Total Assets Choose Numerator: / Choose Denominator: = Return on Total Assets Net income / Average total assets = Return on Total Assets 2015: $29,052 / $214,800 = 13.5% %

	(11) Return on Common Stockholders' Equity Choose Numerator: / Choose Denominator = Return On Common Stockholders' Equity Net income - Preferred dividends / Average common stockholders' equity = Return On Common Stockholders' Equity 2015: $29,052 - / $132,774 = 21.9 %

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Questions 9-10

[The following information applies to the questions displayed below.]

Summary information from the financial statements of two companies competing in the same industry follows.

		Barco Company		Kyan Company				Barco Company		Kyan Company
Data from the current year-end balance sheets						Data from the current year’s income statement
Assets						Sales	$	770,000	$	880,200
Cash	$	19,500	$	34,000		Cost of goods sold		585,100		632,500
Accounts receivable, net		37,400		57,400		Interest expense		7,900		13,000
Current notes receivable (trade)		9,100		7,200		Income tax expense		14,800		24,300
Merchandise inventory		84,440		132,500		Net income		162,200		210,400
Prepaid expenses		5,000		6,950		Basic earnings per share		4.51		5.11
Plant assets, net		290,000		304,400		Cash dividends per share		3.81		3.93
Total assets	$	445,440	$	542,450
						Beginning-of-year balance sheet data
Liabilities and Equity						Accounts receivable, net	$	29,800	$	54,200
Current liabilities	$	61,340	$	93,300		Current notes receivable (trade)		0		0
Long-term notes payable		80,800		101,000		Merchandise inventory		55,600		107,400
Common stock, $5 par value		180,000		206,000		Total assets		398,000		382,500
Retained earnings		123,300		142,150		Common stock, $5 par value		180,000		206,000
Total liabilities and equity	$	445,440	$	542,450		Retained earnings		98,300		93,600

9.

Required:
1.1	For both companies compute the (a) current ratio, (b) acid-test ratio, (c) accounts (including notes) receivable turnover, (d) inventory turnover, (e) days' sales in inventory, and (f) days' sales uncollected.(Do not round intermediate calculations.)

	(a) Current Ratio Company Choose Numerator: / Choose Denominator: = Current Ratio Current assets / Current liabilities = Current ratio Barco $155,440 / $61,340 = 2.5 to 1 Kyan $238,050 / $93,300 = 2.6 to 1

	(b) Acid-Test Ratio Company Choose Numerator: Choose Denominator: = Acid-Test Ratio Cash + Short-term investments + Current receivables / Current liabilities = Acid-test ratio Barco $19,500 + + $46,500 / $61,340 = 1.1 to 1 Kyan $34,000 + + $64,600 / $93,300 1.1 to 1

	(c) Accounts Receivable Turnover Company Choose Numerator: / Choose Denominator: = Accounts Receivable Turnover Net sales / Average accounts receivable, net = Accounts receivable turnover Barco $770,000 / $38,150 = 20.2 times Kyan $880,200 / $59,400 = 14.8 times

	(d) Inventory Turnover Company Choose Numerator: / Choose Denominator: = Inventory Turnover Cost of goods sold / Average inventory = Inventory turnover Barco $585,100 / $70,020 = 8.4 times Kyan $632,500 / $119,950 = 5.3 times

	(e) Days’ Sales in Inventory Company Choose Numerator: / Choose Denominator: x Days = Days’ Sales in Inventory Merchandise inventory / Cost of goods sold x 365 = Days’ sales in inventory Barco $84,440 / $585,100 x 365 = 52.7 days Kyan $132,500 / $632,500 x 365 = 76.5 days

	(f) Days' Sales Uncollected Company Choose Numerator: / Choose Denominator: x Days = Days' Sales Uncollected Current receivables, net / Net sales x 365 = Days' sales uncollected Barco $46,500 / $770,000 x 365 = 22.0 days Kyan $64,600 / $880,200 x 365 = 26.8 days

10.

2.1

For both companies compute the (a) profit margin ratio, (b) total asset turnover, (c) return on total assets, and (d) return on common stockholders’ equity. Assuming that share and each company’s stock can be purchased at $75 per share, compute their (e) price-earnings ratios and (f) dividend yields. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

	(a) Profit Margin Ratio Company Choose Numerator: / Choose Denominator: = Profit margin ratio Net income / Net sales = Profit margin ratio Barco $162,200 / $770,000 = 21.1 % Kyan $210,400 / $880,200 = 23.9 %

	(b) Total Asset Turnover Company Choose Numerator: / Choose Denominator: = Total Asset Turnover Net sales / Average total assets = Total asset turnover Barco $770,000 / $421,720 = 1.8 times Kyan $880,200 / $462,475 = 1.9 times

	(c) Return on Total Assets Company Choose Numerator: / Choose Denominator: = Return on Total Assets Net income / Average total assets = Return on total assets Barco $162,200 / $421,720 = 38.5 % Kyan $210,400 / $462,475 = 45.5 %

	(d) Return On Common Stockholders' Equity Company Choose Numerator: / Choose Denominator = Return On Common Stockholders' Equity Net income - Preferred dividends / Average common stockholders' equity = Return on common stockholders' equity Barco $162,200 - / $290,800 = 55.8 % Kyan $210,400 - / $323,875 = 65.0 %

	(e) Price-Earnings Ratio Company Choose Numerator: / Choose Denominator: = Price-Earnings Ratio Market price per common share / Earnings per share = Price-Earnings Ratio Barco $75 / $4.51 = 16.6 times Kyan $75 / $5.11 = 14.7 times

	(f) Dividend Yield Company Choose Numerator: / Choose Denominator: = Dividend Yield Annual cash dividends per share / Market price per share = Dividend Yield Barco $3.81 / $75 = 5.1 % Kyan $3.93 / $75 = 5.2 %