The current asset section of the Excalibur Tire Company's balance sheet consists of cash, marketable securities, accounts receivable, and inventories. The December 31,2018 , balance sheet revealed the following:

$$\begin{array}{lr}\text { Inventories } & \$ 840,000 \\ \text { Total assets } & \$ 2,800,000 \\ \text { Current ratio } & 2.25 \\ \text { Acid-tetst ratio } & 1.2 \\ \text { Debt to equity ratio } & 1.8\end{array}$$

Required: Determine the following 2018 balance sheet items:

1. Current assets
2. Shareholders' equity
3. Long-term assets
4. Long-term liabilities

The following is the balance sheet of Korver Supply Company at December 31, 2020 (prior year).

Transactions during 2021 (current year) were as follows:

1. Sales to customers on account $800,000
2. Cash collected from customers 780,000
3. Purchase of merchandise on account 550,000
4. Cash payment to suppliers 560,000
5. Cost of merchandise sold 500,000
6. Cash paid for operating expenses 160,000
7. Cash paid for interest on notes 12,000

Additional Information:

• The notes payable are dated June 30, 2020, and are due on June 30, 2022. Interest at 6% is payable annually on June 30.
• Depreciation on the furniture and fixtures for 2021 is$20,000.
• The furniture and fixtures originally cost $300,000.

Required:

• Prepare a classified balance sheet at December 31, 2021, by updating ending balances from 2020 for transactions during 2021 and the additional information. The cost of furniture and fixtures and their accumulated depreciation are shown separately.

A retail company must file a monthly sales tax report listing the sales for the month and the amount of sales tax collected. Write a program that asks for the month, the year, and the total amount collected at the cash register (that is, sales plus sales tax). Assume the state sales tax is 4 percent and the county sales tax is 2 percent.

If the total amount collected is known and the total sales tax is 6 percent, the amount of product sales may be calculated as:

$$S=\frac{T}{1.06}$$

where $S$ is the product sales and T is the total income (product sales plus sales tax).

The program should display a report similar to the following:

Month: March 2008
--------------------
Total Collected:    $26572.89
Sales:$ 25068.76
County Sales Tax:   $501.38
State Sales Tax:$  1002.75
Total Sales Tax:    $  1504.13

3 entrepreneurs were looking to start a new brewpub near Sacramento, California, called Roseville Brewing Company (RBC). Brewpubs provide two products to customers—food from the restaurant segment and freshly brewed beer from the beer production segment. Both segments are typically in the same building, which allows customers to see the beer-brewing process.

After months of research, the owners made a financial model that showed the following projections for the first year of operations:

In the process of pursuing capital through private investors and fi nancial institutions, RBC was approached with several questions. The following represents a sample of the more common questions asked:

• What is the break-even point?
• What sales dollars will be required to make $200,000? To make$500,000?
• Is the product mix reasonable? (Beer tends to have a higher contribution margin ratio than food, and therefore product mix assumptions are critical to profi t projections.)
• What happens to operating profi t if the product mix shifts?
• How will changes in price affect operating profi t?
• How much does a pint of beer cost to produce?

It became clear to the owners of RBC that the initial financial model was not adequate for answering these types of questions. After further research, RBC created another financial model that provided the following information for the fi rst year of operations:

Required
Why was the first financial model prepared by RBC inappropriate for answering most of the questions asked by investors and bankers? Be specific.

Haskins and Jones, Attorneys-at-Law, maintains its books on a cash basis. During 2021, the law firm collected $545,000 for services rendered to its clients and paid out$412,000 in expenses. You are able to determine the following information about accounts receivable, prepaid expenses, deferred service revenue, and accrued liabilities:

$$\begin{array}{lcc} & \text { January 1, 2021 } & \text { December 31, 2021 } \\ \hline \text { Accounts receivable } & \$ 62,000 & \$ 55,000 \\ \text { Prepaid insurance } & 4,500 & 6,000 \\ \text { Prepaid rent } & 9,200 & 8,200 \\ \text { Deferred service revenue } & 9,200 & 11,000 \\ \text { Accrued liabilities } & 12,200 & 15,600 \end{array}$$

In addition, 2021 depreciation expense on office equipment is $22,000.

Determine accrual basis net income for 2021.

The general ledger of Pipers Plumbing at January 1, 2018, includes the following account balances:

$$\begin{matrix} \text{Accounts} & \text{Debits} & \text{Credits}\\ \text{Cash} & \text{$\$4,500$} & \text{ }\\ \text{Accounts Receivable} & \text{$9,500$} & \text{ }\\ \text{Supplies} & \text{$3,500$} & \text{ }\\ \text{Equipment} & \text{$36,000$} & \text{ }\\ \text{Accumulated Depreciation} & \text{ } & \text{$\$8,000$}\\ \text{Accounts Payable} & \text{ } & \text{$6,000$}\\ \text{Utilities Payable} & \text{ } & \text{$7,000$}\\ \text{Deferred Revenue} & \text{ } & \text{$-0-$}\\ \text{Common Stock} & \text{ } & \text{$23,000$}\\ \text{Retained Earnings} & \text{\_\_\_\_\_} & \underline{9,500}\\ \text{Totals} & \underline{\underline{\$ 53,500}} & \underline{\underline{\$ 53,500}} \\ \end{matrix}$$

The following is a summary of the transactions for the year:

$$\begin{matrix} \text{a. January 24} & \text{Provide plumbing services for cash, \$20,000, and on account, \$65,000.}\\ \text{b. March 13} & \text{Collect on accounts receivable, \$53,000.}\\ \text{c. May 6} & \text{Issue shares of common stock in exchange for \$11,000 cash.}\\ \text{d. June 30} & \text{Pay salaries for the current year, \$33,000.}\\ \text{e. September 15} & \text{Pay for utilities expenses, \$13,000, of which \$7,000 represents costs for 2017.}\\ \text{f. November 24} & \text{Receive cash in advance from customers, \$10,000.}\\ \text{g. December 30} & \text{Pay \$3,000 cash dividends to stockholders.}\\ \end{matrix}$$

1. Set up the necessary I-accounts and enter the beginning balances from the trial balance. In addition to the accounts shown, the company has accounts for Dividends, Service Revenue, Salaries Expense, Utilities Expense, Supplies Expense, and Depreciation Expense. 2. Record each of the summary transactions listed above. 3. Post the transactions to the accounts. 4. Prepare an unadjusted trial balance. 5. Record adjusting entries. Depreciation for the year on the machinery is $8,000. Plumbing supplies remaining on hand at the end of the year equal$1,100. Of the $10,000 paid in advance by customers,$7,000 of the work has been completed by the end of the year. 6. Post adjusting entries. 7. Prepare an adjusted trial balance. 8. Prepare an income statement for 2018 and a classified balance sheet as of December 31, 2018. 9. Record closing entries. 10. Post closing entries. 11. Prepare a post-closing trial balance.

Pirates Incorporated had the following balances at the beginning of September.

$$\begin{matrix} \text{Accounts} & \text{Debits} & \text{Credits}\\ \text{Cash} & \text{$\$ 6,500$}\\ \text{Accounts Receivable} & \text{$2,500$}\\ \text{Supplies} & \text{$7,600$}\\ \text{Land} & \text{$11,200$}\\ \text{Accounts Payable} & \text{ } & \text{$\$ 7,500$}\\ \text{Notes Payable} & \text{ } & \text{$3,000$}\\ \text{Common Stock} & \text{ } & \text{$9,000$}\\ \text{Retained Earnings} & \text{ } & \text{$8,300$}\\ \end{matrix}$$

The following transactions occur in September.

$$\begin{matrix} \text{September 1} & \text{Provide services to customers for cash, \$4,700.}\\ \text{September 2} & \text{Purchase land with a long-term note for \$6,400 from Crimson Company.}\\ \text{September 4} & \text{Receive an invoice for \$500 from the local newspaper for an advertisement}\\ \text{ } & \text{that appeared on September 2.}\\ \text{September 8} & \text{Provide services to customers on account for \$6,000.}\\ \text{September 10} & \text{Purchase supplies on account for \$1,100.}\\ \text{September 13} & \text{Pay \$4,000 to Crimson Company for a long-term note.}\\ \text{September 18} & \text{Receive \$5,000 from customers on account.}\\ \text{September 20} & \text{Pay \$900 for September's rent.}\\ \text{September 30} & \text{Pay September's utility bill of \$2,000.}\\ \text{September 30} & \text{Pay employees \$4,000 for salaries for the month of September.}\\ \text{September 30} & \text{Pay a cash dividend of \$1,100 to shareholders.}\\ \end{matrix}$$

1. Record each transaction. 2. Post each transaction to the appropriate T-accounts. 3. Calculate the balance of each account at September 30. 4. Prepare a trial balance as of September 30.

Green Wave Company plans to own and operate a storage rental facility. For the first month of operations, the company has the following transactions.

$$\begin{array}{ll} \text{1. January 1} & \text{Issue 10,000 shares of common stock in exchange for \$42,000 in cash.}\\ \text{2. January 5} & \text{Purchase land for \$24,000. A note payable is signed for the full amount.}\\ \text{3. January 9} & \text{Purchase storage container equipment for \$9,000 cash.}\\ \text{4. January 12} & \text{Hire three employees for \$3,000 per month.}\\ \text{5. January 18} & \text{Receive cash of \$13,000 in rental fees for the current month.}\\ \text{6. January 23} & \text{Purchase office supplies for \$3,000 on account.}\\ \text{7. January 31} & \text{Pay employees \$9,000 for the first month's salaries.}\\ \end{array}$$

Required: 1. Record each transaction. Green Wave uses the following accounts: Cash, Supplies, Land, Equipment, Common Stock, Accounts Payable, Notes Payable, Service Revenue, and Salaries Expense. 2. Post each transaction to T-accounts and compute the ending balance of each account. Since this is the first month of operations, all T-accounts have a beginning balance of zero. 3. After calculating the ending balance of each account, prepare a trial balance.

Green Wave Company plans to own and operate a storage rental facility. For the first month of operations, the company has the following transactions.

1. Issue 10,000 shares of common stock in exchange for $32,000 in cash.
2. Purchase land for$19,000. A note payable is signed for the full amount. 3. Purchase storage container equipment for $8,000 cash.
3. Hire three employees for$2,000 per month.
4. Receive cash of $12,000 in rental fees for the current month.
5. Purchase office supplies for$2,000 on account.
6. Pay employees $6,000 for the first month's salaries.

Required:

1. Record each transaction. Green Wave uses the following accounts: Cash, Supplies, Land, Equipment, Common Stock, Accounts Payable, Notes Payable, Service Revenue, and Salaries Expense.
2. Post each transaction to T-accounts and compute the ending balance of each account. Since this is the first month of operations, all T-accounts have a beginning balance of zero.
3. After calculating the ending balance of each account, prepare a trial balance.

The following transactions occurred during March 2021 for the Wainwright Corporation. The company owns and operates a wholesale warehouse.

1. Issued 30,000 shares of common stock in exchange for $300,000 in cash.

2. Purchased equipment at a cost of$40,000. $10,000 cash was paid and a note payable to the seller was signed for the balance owed.

3. Purchased inventory on account at a cost of$90,000. The company uses the perpetual inventory system.

4. Credit sales for the month totaled $120,000. The cost of the goods sold was$70,000.

5. Paid $5,000 in rent on the warehouse building for the month of March.

6. Paid$6,000 to an insurance company for fire and liability insurance for a one-year period beginning April 1, 2021.

7. Paid $70,000 on account for the merchandise purchased in 3.

8. Collected$55,000 from customers on account.

9. Recorded depreciation expense of $1,000 for the month on the equipment.

Prepare journal entries to record each of the transactions listed

A company's break-even point will not be increased by:

A. an increase in total fixed costs.

B. a decrease in the selling price per unit.

C. an increase in the variable cost per unit

D. an increase in the number of units produced and sold

Explain the calculation of the following solvency ratios: 1. the debt to equity ratio, and 2. the times interest earned ratio.

Best Buy Co, Inc., is a leading retailer specializing in consumer electronics. A condensed income statement and balance sheet for the fiscal year ended January 30,2016 , are shown next.

$$\begin{array}{c} \text{Best Buy Co, Inc.}\\ \text{Balance sheet}\\ \text{At January 30, 2016}\\ \end{array}$$

$$\begin{array}{c} \text{Best Buy Co, Inc.}\\ \text{Income statement}\\ \text{At January 30, 2016}\\ \end{array}$$

$$\begin{array}{lr} \text{Revenues}&\$39,258\\ \text{Cost and expenses}&\underline{38,153}\\ \text{Operating income}&1,375\\ \text{Other income (expense)}&\underline{~~~~(65)}\\ \text{Income before income taxes}&1,310\\ \text{Income tax expense}&\underline{~~~~~503}\\ \text{Net income}&\underline{\underline{\$807}} \end{array}$$

Liquidity and solvency ratios for the industry are as follows:

$$\begin{array}{lc} &\text{Industry Average}\\ \text { Current ratio } & 1.23 \\ \text { Acid-test ratio } & 0.60 \\ \text { Debt to equity } & 0.70 \\ \text { Times interest earned } & 5.66 \text { times }\end{array}$$

Required:

1. Determine the following ratios for Best Buy for its fiscal year ended January 30, 2016. a. Current ratio b. Acid-test ratio c. Debt to equity ratio d. Times interest earned ratio
2. Using the ratios from requirement 1, assess Best Buy's liquidity and solvency relative to its industry.

The Eldorado Corporation’s controller prepares adjusting entries only at the end of the reporting year. The following adjusting entries were prepared on December 31, 2021:

$$\begin{array}{ccr} & \text { Debit } & \text { Credit } \\ \text { Interest expense } & 7,200 & \\ \quad \text { Interest payable } & 3,200 \\ \begin{array}{c} \text { Rent expense } \\ \text { Prepaid rent } \end{array} & 5,000 & 35,000 \\ \begin{array}{c} \text { Interest receivable } \\ \text { Interest revenue } \end{array} & 500 & 500 \end{array}$$

Additional information:

1. The company borrowed $120,000 on March 31, 2021. Principal and interest are due on March 31, 2022. This note is the company’s only interest-bearing debt.

2. Rent for the year on the company’s office space is$60,000. The rent is paid in advance.

3. On October 31, 2021, Eldorado lent money to a customer. The customer signed a note with principal and interest at 6% due in one year.

Determine the following:

1. What is the interest rate on the company’s note payable?

2. The 2021 rent payment was made at the beginning of which month?

3. How much did Eldorado lend its customer on October 31?