Ex. 5.10 a. Net Income ($12,750) ÷ Total Revenue ($51,000) 25%
Significance: All companies must consume resources (incur
costs) in order to generate revenue. The net income
Ex. 5.11 a. Net Income ($3,040) ÷ Total Revenue ($152,000) 2%
d. Current Assets ($94,000) ÷ Current Liabilities ($235,000) 0.4-to-1
Significance: All companies must consume resources (incur
costs) in order to generate revenue. The net income percentage
Based on the above measures, this company appears to be
marginally profitable but heading for liquidity problems.
Significance: The current ratio is simply working capital
expressed as a proportion. Thus, it is also a measure of short-
term liquidity.
Ex. 5.12 a. (1)
Lift Ticket Revenue, $210,000 ($850,000 $640,000)
Ex. 5.14
a. U NE NE NE
e. NE NE NE NEFailed to disclose a pending
lawsuit in the notes
accompanying the financial
statements.
Retained
Earnings
Error
Recorded a dividend as an
expense in the income
statement.
Net Income
Total
Assets Total
Liabilities
Ex. 5.15 a.
b.
c. Profitability:
The company uses straight-line depreciation as discussed in the Summary of
Revenue, net of estimated returns and sales tax, is recognized at the time
customers take possession of merchandise or receive services. Cash received
p
rior to this
p
oint is re
p
orted as Deferred Revenue in the liabilit
y
section of the
balance sheet.
Net income for the year ended February 3, 2013, was $4.535 billion, which was
$652 million more than the year ended January 29, 2012, and $1.197 billion
a.
130
,
000$
1
,
800$
,
pp
,
p
,
p
,
,
,
,
,
,
p
,
,
Part
y
revenue earne
d
Ex
p
enses:
SOLUTIONS TO PROBLEMS SET
A
PARTY WAGON, INC
.
For the Year Ended December 31, 201
5
Insurance ex
p
ense
Income Statement
20 Minutes, Easy PROBLEM 5.1
A
PARTY WAGON, INC
.
Revenues:
Asset
s
$ 15
,
000
9
,
000
4
,
500
2
,
000
500
,
,
$ 7
,
000
39
,
000
1
,
600
200
400
1
,
800
$ 50
,
000
,
p
,
,
,
Pre
p
aid rent
Interest
p
a
y
able
Unearned
p
art
y
revenu
e
PROBLEM 5.1
A
PARTY WAGON, INC. (continued
)
Accounts receivabl
e
Unex
p
ired insurance
PARTY WAGON, INC.
December 31, 201
5
Balance Shee
t
Cash
Salaries
p
a
y
able
a. (cont’d)
Notes
p
a
y
able
Income taxes
p
a
y
able
Total Liabilities
Su
pp
lies
Accounts
p
a
y
abl
e
Liabilities
,
b.
Dec. 31 130
,
000
Income Summar
y
130
,
000
31 123
,
000
Insurance Ex
p
ense 1
,
800
Office Rent Ex
p
ense 12
,
000
,
,
,
,
,
,
,
31 7
,
000
Retained Earnin
g
s7
,
000
31 1
,
000
Dividends 1
,
000
c. For the year ended December 31, 2015, the company generated net income of $7,000 on
$130,000 sales. Thus, net income as a percentage of sales was approximately 5.4%.
Moreover, the $7,000 profit represented a 30.4% return on average stockholders’ equity
(
3
)
To transfer net income earned in 2015 to the
Retained Earnin
g
s
Retained Earnin
g
s account.
To transfer dividends declared in 2015 to the
Part
y
Revenue Earne
d
To close Part
y
Revenue Earned.
Income Summar
y
(
4
)
Income Summar
y
(
2
)
Retained Earnin
g
s account
(
$130,000 – $123,000 =
PROBLEM
5
.
1A
PARTY WAGON, INC
.
December 31, 201
5
(1)
General Journal
PARTY WA
GO
N
(
concluded
)
,
a.
340
,
000$
4
,
800$
72
,
000 10
,
400
120
,
000 60
,
p
,
,
p
,
,
,
,
,
,
$ 60,000
For the Year Ended December 31, 2015
Statement of Retained Earnings
Retained earnings (1/1/15)
AFFORDABLE LAWN CARE, INC.
Mowin
g
revenue earned
Ex
p
enses:
Office rent ex
p
ense
Insurance ex
p
ense
Su
pp
lies ex
p
ense
Salar
y
ex
p
ens
e
PROBLEM 5.2
A
AFFORDABLE LAWN CARE, INC
.
Revenues:
30 Minutes, Medium
AFFORDABLE LAWN CARE, INC
.
For the Year Ended December 31, 201
5
Income Statement
a. (cont’d)
Asset
s
117
,
050$ 9
,
600
16
,
000 6
,
000 2
,
,
,
g
,
3
,
000$
100
,
000 1
,
800 300
2
,
100 1
,
800
109
,
000$
,
,
,
,
Unearned mowin
g
revenue
Notes
p
a
y
able
Salaries
p
a
y
able
Income taxes
p
a
y
able
Pre
p
aid rent
Interest
p
a
y
able
Liabilities
Accounts
p
a
y
abl
e
Total liabilities
PROBLEM 5.2
A
AFFORDABLE LAWN CARE, INC. (continued
)
Accounts receivabl
e
Unex
p
ired insurance
AFFORDABLE LAWN CARE, INC.
December 31, 201
5
Balance Shee
t
Cash
b.
Dec. 31 340
,
000
Income Summar
y
340
,
000
31 312
,
200
Insurance Ex
p
ense 4
,
800
Office Rent Ex
p
ense 72
,
000
Su
pp
lies Ex
p
ense 10
,
400
Salar
y
Ex
p
ense 120
,
000
p
,
p
,
,
,
,
,
31 27
,
800
Retained Earnin
g
s27
,
800
,
g
,
Income Summar
y
To transfer net income earned in 2015 to the
$27,800
)
.
(
)
Mowin
g
Revenue Earned
To close Mowin
g
Revenue Earned.
(
2
)
Retained Earnin
g
s account
(
$340,000 – $300,200 =
Income Summar
y
(
3
)
PROBLEM 5.2
A
AFFORDABLE LAWN CARE, INC
.
December 31, 201
5
(1)
General Journal
AFFORDABLE LAWN CARE, INC. (continued
)
p
,