Question

Problems: For partial credit, work must be shown in an orderlyfashion. Answers will be graded based on their ability tocommunicate the problem solvingprocess. 30 points

Required: Prepare a multiple-step income statement in good form.

Calculate retained earnings as of December 31.

Prepare a classified balance sheet ingood form.

Calculate the providedratios 20 points

Additional Information:

Assume that all taxes are at 30% unless otherwise indicated. Theincome tax expense on continuing operations and the income taxliability have not yet been recorded.

Line Item 1 refers to a loss of $70,000 on uninsured damagedfrom a meteor that crashed into a plant facility in New Mexico. Themeteor is considered BOTH UNUSUAL AND INFREQUENT. The applicabletax rate was 35%.

Line Item 2 is income from the publishing division of the firmprior to May 1, 2016. On May 1, management decided to spin-off[discontinue] the operations.

Line Item 3 is also related to the publishing division mentionedin “c” above. Actual losses on the divisions operations after May 1totaled $50,000. Management further expected additional losses of$30,000 on operations and a loss of $220,000 on the sale of thedivision’s assets.

Line Item 4 arose from the sale of long-term investments. Theportfolio that originally cost $250,000 was sold for $284,000.

Line Item 5 arose from discovery of equipment, costing $600,000that had been written off in 2014 as an operating expense. As ofthe beginning of the 2016 the accumulated depreciation was$100,000. The book value of the equipment was $500,000.

Line Item 6 refers to restructuring costs.

Line Item 7 refers to inventory that was on Hand on December 31,and was discovered to be obsolete during the year-end count onJanuary 15, 2017.

The investment account represents two portfolios. The firstportfolio cost $200,000 and is worth $215,000. These stocks andbonds are available currently for sale to raise cash resources. Theother investment, costing $1,000,000 and worth $1,000,000, will beheld indefinitely [long-term] by management.

Included in goodwill is an amount equal to $100,000 thatmanagement “created” after a successful advertising campaign. Theoffsetting credit was to paid-in capital in excess of par value:common.

During 2016, management decided that the usefulness of thefranchise would only last four of the remaining five years.Consequently, management increased the amortization by $100,000 or25 percent in 2016. The new estimate was used in 2016 and would becontinued for the remaining three years.

Inventory on December 31, 2016 was $200,000 after consideringthe decline from line item 7.

The state authorized 100,000 shares of 8 % preferred stock witha par value of $100 of which 8,000 shares have been issued.

The state also authorized 2,000,000 shares of common stock, witha par value of $10 par value. There are no shares in treasury.

The bonds will be refinanced when they are due in 2017.

Foreign currency translation losses were $ 3,000.

Thornhill Company
Trial Balance
as of December 31, 2016
Account Title		Debit		Credit
8 %, Preferred Stock		$ -		$ 1,000,000.00
Accounts Payable				120,000
Accounts Receivable		300,000
Accumulated Depreciation: building				970,000
Accumulated Depreciation: equipment				3,550,000
Administrative Expenses		400,000
Bond Payable				4,000,000
Building		2,000,000
Cash		100,000		$ -
Common Stock (200,000 shares outstanding)				5,550,000
Discount on Bonds Payable		125,000
Dividends		300,000
Equipment		5,000,000
Franchise		340,000
Freight-in		15,000
Goodwill		785,000
Income Taxes Expenses		88,200
Income taxes Payable				88,200
Interest Expense		700,000
Inventory		170,000
Investments		1,200,000
Land		800,000
Long-term Notes Payable				2,500,000
Net Sales				5,300,000
Paid-in Capital in excess of par value: common				300,000
Plant Facilities under Construction		8,000,000
Prepaid Expenses		60,000
Purchase Discounts				65,000
Purchase Returns and Allowances				125,000
Purchases		2,575,000
Retained Earnings				747,500
Selling Expenses		650,000
Item 1 (net of taxes of $24,500)		45,500
Item 2 (net of taxes of $6,000)				14,000
Item 3 (net of taxes of $90,000)		210,000
Item 4				34,000
Item 5 (net of taxes of $150,000)				350,000
Item 6		840,000
Item 7		10,000
Total		$ 24,713,700		$ 24,713,700

Financial Ratios

Current Ratio = Current Assets /Current Liabilities.

Quick Ratio = (Cash + MarketableSecurities + Receivables) / Current Liabilities.

Working Capital = Current Assets -Current Liabilities.

Total debt to total assets = Total Liabilities / TotalAssets.

Gross Profit Rate = Gross Profit/ Net Sales

Netincome as a percentage of sales = Net Income / Net Sales

Return on assets= Operating Income

[Beginning Total Assets + Ending Total Assets]/2

Assume that beginning assets were $13,720,000

Return on stockholders’ equity=

Net Income

[BeginningTotal Stockholders’ Equity + Ending Total Stockholders’Equity]/2

Assume that beginning stockholders’equity was $7,947,500

Price-Earnings Ratio = MarketPrice per Commons Share

Earnings per Common Share

Assume a market price of $ 1.00

Accounts Receivable Turnover = NetSales

Assume that beginning accounts receivable were $ 300,000

Average Collection Period = 365 days/ Accounts Receivable Turnover Ratio

Inventory Turnover = Cost of Goods Sold

Average Sales Period = 365 days /Inventory Turnover Ratio

Operating Cycle = The AverageCollection Period + The Average Sales Period.

i need you to prepare a completeclassified balance sheet based on the trial balance and theadditional information. Next, I need you to prepare a multi-stepincome statement based on the same information. Then, calculate thefinancial ratios provided.