On January 1, Year 1, the general ledger of a company includes the following account balances:...

On January 1, Year 1, the general ledger of a company includes the following account balances:

Accounts	Debit		Credit
Cash	$	59,400
Accounts Receivable		26,400
Allowance for Uncollectible Accounts			$	2,900
Inventory		37,000
Notes Receivable (5%, due in 2 years)		20,400
Land		162,000
Accounts Payable				15,500
Common Stock				227,000
Retained Earnings				59,800
Totals	$	305,200	$	305,200

During January Year 1, the following transactions occur:

January	1	Purchase equipment for $20,200. The company estimates a residual value of $2,200 and a six-year service life.
January	4	Pay cash on accounts payable, $10,200.
January	8	Purchase additional inventory on account, $89,900.
January	15	Receive cash on accounts receivable, $22,700.
January	19	Pay cash for salaries, $30,500.
January	28	Pay cash for January utilities, $17,200.
January	30	Sales for January total $227,000. All of these sales are on account. The cost of the units sold is $118,500.

Information for adjusting entries:

Depreciation on the equipment for the month of January is calculated using the straight-line method.
The company estimates future uncollectible accounts. The company determines $3,700 of accounts receivable on January 31 are past due, and 50% of these accounts are estimated to be uncollectible. The remaining accounts receivable on January 31 are not past due, and 2% of these accounts are estimated to be uncollectible. (Hint: Use the January 31 accounts receivable balance calculated in the general ledger.)
Accrued interest revenue on notes receivable for January.
Unpaid salaries at the end of January are $33,300.
Accrued income taxes at the end of January are $9,700.

rev: 11_22_2018_QC_CS-148298, 06_13_2019_QC_CS-170054

7. Analyze how well the company manages its assets:

Requirement 1:

a-1. Calculate the return on assets ratio for the month of January.

a-2. If the average return on assets for the industry in January is 2%, is the company more or less profitable than other companies in the same industry?

More profitable
Less profitable

Requirement 2:

b-1. Calculate the profit margin for the month of January.

b-2. If the industry average profit margin is 3%, is the company more or less efficient at converting sales to profit than other companies in the same industry?

More efficient
Less efficient

Requirement 3:

c-1. Calculate the asset turnover ratio for the month of January.

c-2. If the industry average asset turnover is 0.5 times per month, is the company more or less efficient at producing revenues with its assets than other companies in the same industry?

More efficient
Less efficient

Solutions

Expert Solution

ekkarill92 answered 1 year ago

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