Question

In: Accounting

The following items are taken from the adjusted trial balance of Sutch Video Productions at December...

The following items are taken from the adjusted trial balance of Sutch Video Productions at December 31, 2017:

Accounts Payable....................................................................................$ 15,000

Accounts Receivable...............................................................................11,000

Accumulated Depreciation—Video Equipment......................................28,000

AdvertisingExpense...............................................................................21,000

Cash........................................................................................................24,000

Depreciation Expense..............................................................................12,000

J. Sutch, capital........................................................................................102,000

J. Sutch, drawings....................................................................................15,000

Insurance Expense...................................................................................3,000

Note Payable (due 2019).........................................................................70,000

Prepaid Insurance....................................................................................6,000

Rent Expense...........................................................................................17,000

Salaries Expense......................................................................................34,000

Salaries Payable.......................................................................................3,000

ServiceRevenue......................................................................................145,000

Supplies...................................................................................................4,000

Supplies Expense.....................................................................................6,000

Video Equipment.....................................................................................210,000

a.Calculate the Profit.

b. Calculate the balance of Owner's Equity that would appear on a balance sheet at December 31, 2017.

c. Prepare a classified balance sheet for Sutch Video Productions at December 31, 2017.

d. Calculate the working capital and the current ratio. Which of the two measures is preferable for comparing Sutch’s liquidity with competitors’?

Solutions

Expert Solution

(a) Calculation of Profit :-

Service Revenue	145000
(-) Supplies Exp	6000
(-) Salary exp	34000
(-) Rent Exp	17000
(-) Insurance exp	3000
(-) Depreciation Exp	12000
(-) Advertising Exp	21000
Profit	52000

(b) Owners Equity :-

J. Sutch, Capital	102000
Net Income during the year	52000
Total	154000
(-) Withdrawal	(15000)
Owners Equity	139000

(c) Classified Balance sheet as on 31 Dec, 2017 :-

Current Assets			Current Liabilities
Cash	24000		Account Payable	15000
Account Receivable	11000		Salary Payable	3000
Supplies	4000		Total Current Liabilities		18000
Prepaid Insurance	6000
Total Current Assets		45000
			Non Current Liabilities
			Notes Payable	70000
			Total Non Current Liabilities		70000
Non Current Assets
Video Equipment	210000		Owners Equity
Accumulated Depreciation-Video Equipment	(28000)		Owners Capital	139000
Total Non Current Assets		182000	Total Owners Equity		139000

Total Assets		227000	Total Liabilities & Equity		227000

(d) Working Capital = Current Asset – Current Liabilities

= 45000 – 18000 = 27000

Current Ratio = Current Asset / Current Liabilities

= 45000/18000 = 2.5 times

Current Ratio is preferable for comparing Sutch’s liquidity with competitors

ekkarill92 answered 1 year ago

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