Question

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.

The question Requires me to do thebalance sheet and calculate the ratios from the trial balance andthe additional informations. use the same information that is thetrial balance and the additional information to solve forMulti-step income statement.