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E5-11 (Balance Sheet Preparation) Presented below is the adjusted…

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E5-11 (Balance Sheet Preparation) Presented...
E5-11 (Balance Sheet Preparation) Presented below is the adjusted trial balance of Kelly Corporation at December 31, 2007.
Debits Credits
Cash $ ?
Office Supplies 1,200
Prepaid Insurance 1,000
Equipment 48,000
Accumulated Depreciation—Equipment $ 4,000
Trademarks 950
Accounts Payable 10,000
Wages Payable 500
Unearned Service Revenue 2,000
Bonds Payable, due 2014 9,000
Common Stock 10,000
Retained Earnings 25,000
Service Revenue 10,000
Wages Expense 9,000
Insurance Expense 1,400
Rent Expense 1,200
Interest Expense 900
Total $ ? $ ?
Additional information:

1. Net loss for the year was $2,500.
2. No dividends were declared during 2007.

Instructions
Prepare a classified balance sheet as of December 31, 2007.
E24-2 (Post-Balance-Sheet Events) For each of the following subsequent (post-balance-sheet) events, indicate whether a company should (a) adjust the financial statements, (b) disclose in notes to the financial statements, or (c) neither adjust nor disclose.

______ 1. Settlement of federal tax case at a cost considerably in excess of the amount expected at year-end.
______ 2. Introduction of a new product line.
______ 3. Loss of assembly plant due to fire.
______ 4. Sale of a significant portion of the company’s assets.
______ 5. Retirement of the company president.
______ 6. Prolonged employee strike.
______ 7. Loss of a significant customer.
______ 8. Issuance of a significant number of shares of common stock.
______ 9. Material loss on a year-end receivable because of a customer’s bankruptcy.
______ 10. Hiring of a new president.
______ 11. Settlement of prior year’s litigation against the company.
______ 12. Merger with another company of comparable size.
*E24-5 (Analysis of Given Ratios) Picasso Company is a wholesale distributor of professional equipment and supplies. The company’s sales have averaged about $900,000 annually for the 3-year period 2006–2008. The firm’s total assets at the end of 2008 amounted to $850,000. The president of Picasso Company has asked the controller to prepare a report that summarizes the financial aspects of the company’s operations for the past 3 years. This report will be presented to the board of directors at their next meeting. In addition to comparative financial statements, the controller has decided to present a number of relevant financial ratios which can assist in the identification and interpretation of trends. At the request of the controller, the accounting staff has calculated the following ratios for the 3-year period 2006–2008.


2006 2007 2008
Current ratio 1.80 1.89 1.96
Acid-test (quick) ratio 1.04 0.99 0.87
Accounts receivable turnover 8.75 7.71 6.42
Inventory turnover 4.91 4.32 3.42
Total debt to total assets 51.0% 46.0% 41.0%
Long-term debt to total assets 31.0% 27.0% 24.0%
Sales to fixed assets (fixed asset turnover) 1.58 1.69 1.79
Sales as a percent of 2006 sales 1.00 1.03 1.07
Gross margin percentage 36.0% 35.1% 34.6%
Net income to sales 6.9% 7.0% 7.2%
Return on total assets 7.7% 7.7% 7.8%
Return on stockholders’ equity 13.6% 13.1% 12.7%
In preparation of the report, the controller has decided first to examine the financial ratios independent
of any other data to determine if the ratios themselves reveal any significant trends over the 3-year
period.
Instructions
(a) The current ratio is increasing while the acid-test (quick) ratio is decreasing. Using the ratios provided,
identify and explain the contributing factor(s) for this apparently divergent trend.
(b) In terms of the ratios provided, what conclusion(s) can be drawn regarding the company’s use of
financial leverage during the 2006–2008 period?
(c) Using the ratios provided, what conclusion(s) can be drawn regarding the company’s net investment
in plant and equipment?
Submitted: 6 years ago.Category: Business and Finance Homework
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