Question

In this problem set, you will be assessing the impact of economic events on the financial statement equation. You will also be preparing an income statement, balance sheet, and statement of stockholders' equity. Finally, you will calculate and analyze two basic financial statement ratios. You must complete both part A and B to earn full credit. Assignment Requirements Part A-Considering the beginning balances and the effects of the transactions listed below, prepare the financial statements for Wildcat Co as of January 31, 2018. You can utilize the excel template, titled Problem- Set#1-FSET-Template.xlsx, provided on D2L as part of the Problem Set #1 documents. 1. Wildcat Co had beginning balances in accounts as follows: Cash $6,000 Accounts Receivable $15,000 Accounts Payable $2,500 d. Retained Earnings $10,000 Common Stock $8,500 а. b. С. е. Determine the impact of transactions for the month of January on the financial statement equation. 2. Borrowed $7,500 cash from the bank Paid $1,500 for January's rent. Paid $750 cash due on outstanding accounts payable. Received $1,450 cash from customers for services performed in January Paid $3,500 cash for salaries earned by employees during January Received a $350 invoice for January's insurance expense. It will be paid in February. Received $8,800 cash on customer's accounts receivables for services performed in December. signed a note payable for that amount. а. b. С. d. е. f. g.

Answer 1

Part A:

Requirement 1: Determine the impact of transactions on accounting equation as follows

Requirement 2: Prepare the income statement as follows

Assets Liabilities + Stockholders' Equity Particulars Cash + Accounts Receivable + + Machinery = Accounts Payable Note Payable " Common Stock Retained Earnings $15,000 + $2.500 $8.500 $10.000 + Beg. Balance (a) + $7,500+ + (b) + ($1,500) Rent Expense $6,000+ $7,500 + ($1.500) (S750) + $1.450 + ($3,500) + + (S750) + + + + + + + + + $1,450 Service Revenue ($3,500) Salaries Expense (S350) Insurance Expense S350 + + Seseo S8.800) + + + $8.800 + ($8.500) (545) + $8.500 + + + + + + $6.900 + + + (545) Interest Expense $6,900 Service Revenue ($4,500) Dividends $8,455 + + ($4,500) $4,955 + || Total + $13,100 $8,500 = $2,100 + $7,500 + $8,500+ +

W Inc
Income Statement
For the Month Ended January 31, 2018
Particulars	Amount	Amount
Service Revenue ($6,900 + $1,450)		$8,350
Deduct: Operating Expenses
Salaries Expense	$3,500
Rent Expense	$1,500
Insurance Expense	$350
Total Operating Expenses		$5,350
Operating income		$3,000
Other Income / (Expenses)
Interest Expense		($45)
Net Income		$2,955

Requirement 3: Prepare the statement of stockholders' equity as follows

W Inc
Statement of Stockholders' Equity
For the Month Ended January 31, 2018
Particulars	Common Stock	Retained Earnings	Total
Beginning Balance	$8,500	$10,000	$18,500
Add: Net income		$2,955	$2,955
Deduct: Dividends		($4,500)	($4,500)
Ending Balance	$8,500	$8,455	$16,955

  Requirement 3: Prepare the balance sheet as follows

W Inc.
Balance Sheet
January 31, 2018
Assets	Amount	Amount
Current Assets:
Cash	$4,955
Accounts Receivable	$13,100
Total Current Assets		$18,055
Property, Plant and Equipment
Machinery		$8,500
Total Assets		$26,555
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts Payable	$2,100
Notes Payable	$7,500
Total Liabilities		$9,600
Stockholders' Equity
Common Shares	$8,500
Retained Earnings	$8,455
Total Stockholders' Equity		$16,955
Total Liabilities and Stockholders' Equity		$26,555

Part B:

Requirement a: Classify the accounts as follows

M Inc Trial Balance December 31, 2019 Account Title | Debit Cash $8.000 Accounts Receivable $22.000 Allowance for Doubtful Accounts Prepaid Insurance $5,650 Inventory $41.500 Property. Plant and Equipment $115,300 Accumulated Depreciation - Equipment Accounts Payable Salaries Payable Notes Payable - Long Term Common Stock Retained Earnings Sales Revenue Cost of Goods Sold $97.000 Salaries and Wage Expense $38.900 Rent Expense $14.100 Depreciation Expense $2.400 Insurance Expense $2.300 Bad Debt Expense $1,300 Interest Expense $3.250 Total $351,700 Credit Classification Asset Asset $2,500 Asset - Contra Asset Asset Asset $33,000 Asset - Contra $8.500 Liability $3,700 Liability $41.000 Liability $35,000 Equity $31.000 Equity $197,000 Revenue Expense Expense Expense Expense Expense Expense Expense $351,700

Requirement b: Prepare the following financial statements

M Inc Amount $197,000 $97.000 $100,000 Income Statement For the Year Ended December 31, 2019 Particulars Amount Sales Revenue Cost of Goods Sold Gross Profit Deduct: Operating Expenses Salaries and Wage Expense $38.900 Rent Expense $14,100 Depreciation Expense $2.400 Insurance Expense $2.300 Bad Debt Expense $1,300 Total Operating Expenses Operating income Other Income (Expenses) Interest Expense Net Income $59.000 $41,000 ($3,250) $37,750 M Inc Statement of Retained Earnings For the Year Ended December 31, 2019 Particulars Amount Beginning Balance Add: Net income Ending Balance Amount $31,000 $37.750 $68,750 Amount Amount $8,000 M Inc Balance Sheet December 31, 2019 Assets Current Assets: Cash Accounts Receivable Deduct: Allowance for Doubtful Accounts Prepaid Insurance Inventory Total Current Assets Property, Plant and Equipment Deduct Accumulated Depreciation Total Assets $22.000 ($2,500 $19,500 $5,650 $41.500 $74,650 $115,300 ($33.000 $82.300 $156,950 $8.500 $3,700 $12.200 Liabilities and Stockholders' Equity Current Liabilities: Accounts Payable Salaries Payable Total Current Liabilities Noncurrent Liabilities Notes Payable - Long Term Total Liabilities Stockholders' Equity Common Stock Retained Earnings Total Stockholders' Equity Total Liabilities and Stockholders' Equity $41.000 $53.200 $35,000 $68.750 $103.750 $156,950

Requirements c:

1. Total amount of current assets = $74,650

2. Total amount of reported liabilities = $53,200

3. Total stockholders' equity = $103,750

4. Compute debt to equity ratio as follows

Debt to equity ratio = Total liabilities ÷ Stockholders equity

= $53,200 ÷ $103,750

= 0.51 times

Debt to equity ratio indicates the percentage of operations financed by debt against the stockholders equity.

5. Compute current ratio as follows

Current ratio = Current Assets ÷ Current Liabilities

= $74,650 ÷ $12,200

= 6.12 times

Current ratio is used to determine the ability of the company to pay off short term debts as they fall due.