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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