ACCOUNTG 221 Lecture Notes - Lecture 2: Retained Earnings, Accounting Equation, Promissory Note
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19 Sep 2016
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Recording business events under the accounting equation: businesses obtain assets from three sources, 1. Profitable operations/net incomes (retained earnings, revenue expenses) event 1: rustic camp sites (rcs) was formed on january 1 2011 when i t acquired ,000 cash from issuing common stock: rcs increases assets (cash) Known as: asset source transaction: double-entry bookkeeping: every transaction affects the accounting equation in at least two places. Event 2: rcs acquired an additional ,000 of cash by borrowing from a creditor. Event 3: rcs paid ,000 cash to purchase land. Event 4: rcs obtained ,000 cash by leasing campsites to customers. Revenue: an economic benefit a company obtains by providing customers with goods and services. Event 5: rcs paid ,000 cash for operating expenses such as salaries, rent, and interest. Expenses: assets and services consumed to generate revenue. Event 6: rcs paid ,000 in cash dividends to its owners.
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The comparative financial statements of Marshall Inc. are as follows. The market price of Marshall common stock was $82.60 on December 31, 20Y2.
Marshall Inc. | ||
Comparative Retained Earnings Statement | ||
For the Years Ended December 31, 20Y2 and 20Y1 | ||
Ā | 20Y2 | 20Y1 |
Retained earnings, January 1 | $3,704,000 | $3,264,000 |
Net income | $ 600,000 | $ 550,000 |
Dividends: | Ā | Ā |
On preferred stock | (10,000) | (10,000) |
On common stock | (100,000) | (100,000) |
Increase in retained earnings | $ 490,000 | $ 440,000 |
Retained earnings, December 31 | $4,194,000 | $3,704,000 |
Ā Ā
Marshall Inc. | ||
Comparative Income Statement | ||
For the Years Ended December 31, 20Y2 and 20Y1 | ||
Ā | 20Y2 | 20Y1 |
Sales | $ 10,850,000 | $10,000,000 |
Cost of goods sold | (6,000,000) | (5,450,000) |
Gross profit | $ 4,850,000 | $ 4,550,000 |
Selling expenses | $ (2,170,000) | $ (2,000,000) |
Administrative expenses | (1,627,500) | (1,500,000) |
Total operating expenses | $(3,797,500) | $ (3,500,000) |
Operating income | $ 1,052,500 | $ 1,050,000 |
Other revenue and expense: | Ā | Ā |
Other revenue | 99,500 | 20,000 |
Other expense (interest) | (132,000) | (120,000) |
Income before income tax expense | $ 1,020,000 | $ 950,000 |
Income tax expense | (420,000) | (400,000) |
Net income | $ 600,000 | $ 550,000 |
Ā Ā
Ā Ā
Marshall Inc. | ||
Comparative Balance Sheet | ||
December 31, 20Y2 and 20Y1 | ||
Ā | 20Y2 | 20Y1 |
Assets | Ā | |
Current assets: | Ā | Ā |
Cash | $1,050,000 | $ 950,000 |
Marketable securities | 301,000 | 420,000 |
Accounts receivable (net) | 585,000 | 500,000 |
Inventories | 420,000 | 380,000 |
Prepaid expenses | 108,000 | 20,000 |
Total current assets | $ 2,464,000 | $2,270,000 |
Long-term investments | 800,000 | 800,000 |
Property, plant, and equipment (net) | 5,760,000 | 5,184,000 |
Total assets | $ 9,024,000 | $8,254,000 |
Liabilities | Ā | |
Current liabilities | $ 880,000 | $ 800,000 |
Long-term liabilities: | Ā | Ā |
Mortgage note payable, 6% | $ 200,000 | $ 0 |
Bonds payable, 4% | 3,000,000 | 3,000,000 |
Total long-term liabilities | $ 3,200,000 | $3,000,000 |
Total liabilities | $ 4,080,000 | $3,800,000 |
Stockholdersā Equity | Ā | |
Preferred 4% stock, $5 par | $ 250,000 | $ 250,000 |
Common stock, $5 par | 500,000 | 500,000 |
Retained earnings | 4,194,000 | 3,704,000 |
Total stockholdersā equity | $ 4,944,000 | $4,454,000 |
TotalĀ liabilities andĀ stockholdersā equity | $ 9,024,000 | $8,254,000 |
Determine the following measures for 20Y2. Round to one decimal place, including percentages, except for per-share amounts, which should be rounded to the nearest cent.
1. Working Capital | $ | Ā |
2. Current ratio | Ā | |
3. Quick ratio | Ā | |
4. Accounts receivable turnover | Ā | |
5. Number of daysā sales in receivables | Ā | |
6. Inventory turnover | Ā | |
7. Number of daysā sales in inventory | Ā | |
8. Ratio of fixed assets to long-term liabilities | Ā | |
9. Ratio of liabilities to stockholdersā equity | Ā | |
10. Times interest earned | Ā | |
11. Asset turnover | Ā | |
12. Return on total assets | % | |
13. Return on stockholdersā equity | % | |
14. Return on common stockholdersā equity | % | |
15. Earnings per share on common stock | $ | Ā |
16. Price-earnings ratio | Ā | |
17. Dividends per share of common stock | $ | Ā |
18. Dividend yield |