Question

Problem 4-4A Preparing closing entries, financial statements, and ratios LO C3, A1, P2 The adjusted trial balance for Tybalt Construction as of December 31, 2017, follows. Credi $ Debit 7,589 22,090 9,280 8,580 45,000 188,888 $ 22,500 60,000 61,550 17,500 2,500 3,600 2,900 700 TYBALT CONSTRUCTION Adjusted Trial Balance December 31, 2017 No. Account Title 101 Cash 184 Short-term investments 126 Supplies 128 Prepaid insurance 167 Equipment 168 Accumulated depreciation-Equipment 173 Building 174 Accumulated depreciation-Building 183 Land 201 Accounts payable 203 Interest payable 208 Rent payable 210 Wages payable 213 Property taxes payable 233 Unearned professional fees 251 Long-term notes payable 301 O. Tybalt, Capital 302 O. Tybalt, Withdrawals 401 Professional fees earned 406 Rent earned 407 Dividends earned 409 Interest earned 606 Depreciation expense-Building 612 Depreciation expense-Equipment 623 Wages expense 633 Interest expense 637 Insurance expense 640 Rent expense 652 Supplies expense 682 Postage expense 683 Property taxes expense 684 Repairs expense 688 Telephone expense 690 Utilities expense Totals 7,400 69,000 132,100 103,000 17,500 2,300 2,789 13,200 6,750 26,880 3,780 7,780 13.000 7,480 3,000 4,820 6,000 2,700 4.200 443.709 O. Tybalt invested $7,500 cash in the business during year 2017 (the December 31, 2016, credit balance of the O. Tybalt, Capital account was $124.600). Tybalt Construction is required to make a $7.500 payment on its long-term notes payable during 2018 Required: 10. Prepare the income statement for the calendar year 2017 1b. Prepare the statement of owner's equity for the calendar-year 2017 1c. Prepare the classified balance sheet at December 31, 2017 2. Prepare the necessary closing entries at December 31, 2017 3. Use the information in the financial statements to compute the following ratios:

Answer 1

Answer -

1A. Answer -

Tybalt Construction
Income Statement
For Year Ended December 31, 2017
Revenues:
Professional fees earned	$103000
Rent earned	$17500
Dividends earned	$2300
Interest earned	$2700
Total revenues		$125500
Expenses:
Depreciation expense-building	$13200
Depreciation expense-equipment	$6750
Wages expense	$26000
Interest expense	$3700
Insurance expense	$7700
Rent expense	$13000
Supplies expense	$7400
Postage expense	$3000
Property taxes expense	$4800
Repairs expense	$6000
Telephone expense	$2700
Utilities expense	$4200
Total expenses		$98450
Net income		$27050

Calculation:

Net income = Total revenue - Total expenses

= $125500 - $98450

= $27050

1B. Answer -

Tybalt Construction
Statement of Owner's Equity
For Year Ended December 31, 2017
O. Tybalt, capital, Dec. 31, 2016		$124600
Add: Investment by owner	$7500
Add: Net income	$27050	$34550
		$159150
Less: Withdrawals by owner		($11500)
O. Tybalt, capital, Dec. 31, 2017		$147650

1C. Answer -

Tybalt Construction
Balance Sheet
December. 31, 2017
Assets:
Current assets:
Cash	$7500
Short-term investments	$22000
Supplies	$9200
Prepaid insurance	$8500
Total current assets		$47200
Fixed assets:
Equipment	$45000
Less: Accumulated depreciation-equipment	($22500)	$22500
Building	$180000
Less: Accumulated depreciation-building	($60000)	$120000
Land		$61550
Total fixed assets		$204050
Total assets		$251250
Liabilities
Current liabilities:
Accounts payable	$17500
Interest payable	$2500
Rent payable	$3600
Wages payable	$2900
Property taxes payable	$700
Unearned professional fees	$7400
Current portion long-term notes payable	$7500
Total current liabilities		$42100
Other liabilities:
Long-term notes payable		$61500
Total liabilities		$103600
Equity:
O. Tybalt, capital (Ending balance)		$147650
Total liabilities and equity		$251250

Calculation:

1. Current portion long-term notes payable:

As per given information,

O. Tybalt construction company make a $7500 payment of long-term notes payable during 2018.

So,

Current portion long-term notes payable = $7500

2. Long-term notes payable:

= $69000 - $7500 (payment of long-term notes payable)

= $61500

2. Answer -

1.

Date	General Journal	Debit	Credit
Dec. 31	Professional fees earned	$103000
	Rent earned	$17500
	Dividends earned	$2300
	Interest earned	$2700
	Income summary		$125500

2.

Date	General Journal	Debit	Credit
Dec. 31	Income summary	$98450
	Depreciation expense-building		$13200
	Depreciation expense-equipment		$6750
	Wages expense		$26000
	Interest expense		$3700
	Insurance expense		$7700
	Rent expense		$13000
	Supplies expense		$7400
	Postage expense		$3000
	Property taxes expense		$4800
	Repairs expense		$6000
	Telephone expense		$2700
	Utilities expense		$4200

3.

Date	General Journal	Debit	Credit
Dec. 31	Income summary	$27050
	O. Tybalt, capital		$27050

4.

Date	General Journal	Debit	Credit
Dec. 31	O. Tybalt, capital	$11500
	O. Tybalt, Withdrawals		$11500

3. Answer -

(a)

(a) Return on assets
Numerator:	/	Denominator:	=	Return on total assets
Net income	/	Average total assets	=	Return on total assets
$27050	/	$225625	=	11.99%

Calculation:

1. Average total assets:

= [Total assets Dec. 31, 2016 + Total assets Dec. 31, 2017] / 2

= [$200000 + $251250] / 2

= $225625

2. Return on assets:

= [Net income / Average total assets] * 100

= [$27050 / $225625] * 100

= 11.99%

(b)

(b) Debt ratio
Numerator:	/	Denominator:	=	Debt ratio
Total liabilities	/	Total assets	=	Debt ratio
$103600	/	$251250	=	0.41:1

Calculation:

Debt ratio:

= Total liabilities / Total assets

= $103600 / $251250

= 0.41:1

(c)

(c) Profit margin ratio
Numerator:	/	Denominator:	=	Profit margin
Net income	/	Total revenue	=	Profit margin
$27050	/	$125500	=	21.55%

Calculation:

Profit margin:

= [Net income / Total revenue] * 100

= [$27050 / $125500] * 100

= 21.55%

(d)

(d) Current ratio
Numerator:	/	Denominator:	=	Current ratio
Current assets	/	Current liabilities	=	Current ratio
$47200	/	$42100	=	1.12:1

Calculation:

Current ratio:

= Total current assets / Total current liabilities

= $47200 / $42100

= 1.12:1