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ACCOUNTINGThe adjusted trial balance of Simpson Corporation at March 31, 2012, follows. Simpson Corporation Adjusted Trial Balance March 31, 2012
$$
\begin{matrix}
\text{Account} & \text{Debit} & \text{Credit}\\
\text{Cash} & \text{\$ 1,700 } & \quad\\
\text{Accounts receivable } & \text{8,800 } & \quad\\
\text{Supplies} & \text{2,000 } & \quad\\
\text{Prepaid rent } & \text{1,700 } & \quad\\
\text{Equipment} & \text{36,000} & \quad\\
\text{Accumulated depreciation } & \quad & \text{\$ 4,600 }\\
\text{Accounts payable} & \quad & \text{3,100 }\\
\text{Interest payable} & \quad & \text{700}\\
\text{Unearned service revenue } & \quad & \text{800}\\
\text{Income tax payable } & \quad & \text{2,400}\\
\text{Note payable } & \quad & \text{18,400}\\
\text{Common stock } & \quad & \text{3,000}\\
\text{Retained earnings } & \quad & \text{2,000}\\
\text{Dividends} & \text{23,000} & \quad\\
\text{Service revenue} & \quad & \text{105,500}\\
\text{Depreciation expense } & \text{1,300} & \quad\\
\text{Salary expense } & \text{39,800} & \quad\\
\text{Rent expense } & \text{10,100} & \quad\\
\text{Interest expense } & \text{2,700} & \quad\\
\text{Insurance expense } & \text{4,000} & \quad\\
\text{Supplies expense } & \text{2,400} & \quad\\
\text{Income tax expense } & \text{7,000} & \quad\\
\text{Total} & \text{\$140,500} & \text{\$140,500}\\
\end{matrix}
$$
Prepare Simpson Corporation’s 2012 income statement, statement of retained earnings, and balance sheet. List expenses (except for income tax) in decreasing order on the income statement, and show total liabilities on the balance sheet. Draw arrows linking the three financial statements. Simpson’s lenders require that the company maintain a debt ratio no higher than 0.60. Compute Simpson’s debt ratio at March 31, 2012, to determine whether the company is in compliance with this debt restriction. If not, suggest a way that Simpson could have avoided this difficult situation. ACCOUNTINGWawa Food Markets is a convenience store chain located primarily in the Northeast. The company sells gas, candy bars, drinks, and other grocery-related items. St. Jude Medical Incorporated sells medical devices related to cardiovascular needs. Suppose a local Wawa Food Market and St. Jude sales office report the following amounts in the same year (company names are disguised):
$$
\begin{matrix}
\text{ } & \text{Company 1} & \text{Company 2 }\\
\text{Net sales} & \text{$\$ 400,000$} & \text{$\$ 400,000$}\\
\text{Cost of goods sold} & \underline{180,000} & \underline{330,000}\\
\text{Gross profit} & \underline{\underline{\$ 220,000}} & \underline{\underline{\$ 70,000}}\\
\text{Average inventory} & \underline{\underline{\$ 40,000}} & \underline{\underline{\$ 30,000}}\\
\end{matrix}
$$
1. For Company 1 and Company 2, calculate the inventory turnover ratio. 2. For Company 1 and Company 2, calculate the gross profit ratio. 3. After comparing the inventory turnover ratios and gross profit ratios, which company do you think is Wawa and which is St. Jude? Explain.
