Question

The following business transactions were completed by Rialto Theatre Corporation from January 1 to 31, 2019.

1. Received and deposited in a bank account $500,000 for capital stock.
2. Purchased the Twin City Drive-In Theatre for $1,000,000, allocated as follows: land $300,000; buildings $375,000; equipment $325,000. Paid $400,000 in cash and gave a mortgage note for the remainder.
3. Entered into a contract for the operation of the refreshment stand concession at a rental of 10% of the concessionaire’s sales, with a guaranteed minimum of $5,000 a month, payable in advance. Received cash of $5,000 as the advance payment for January.
4. Paid premiums for property and casualty insurance policies, $30,000.
5. Purchased supplies, $7,500 and equipment, $14,500, on account.
6. Paid for January billboard and newspaper advertising, $6,500.
7. Cash received from admission for the first week, $34,000.
8. Paid miscellaneous expense, $2,200.
1. Paid semimonthly wages, $24,000.
10. Cash received for admission for the second week, $36,000.
11. Paid miscellaneous expense, $1,750.
50. Paid cash to creditors on account, $20,900.
1000. Cash received for admissions for the third week, $41,500.
14. Purchased supplies for cash, $1,700.
15. Paid for advertising leaflets for June, $1,500.
16. Recorded invoice of $45,000 for rental of film for January. Payment is due on February.
17. Paid electricity and water bills, $6,000.
18. Paid semimonthly wages, $24,500.
19. Cash received from admissions for the fourth week of the month, $37,000.
20. Recorded additional amount owed by the concessionaire for the month of January; sales for the month totaled $55,000. Rental charges in excess of the advance payment of $5,000 are not due and payable until February.

Prepare the financial statements (including the trial balance) and calculate the Acid Test Ratio, the Assets Turnover Ratio and the Return on Equity for Rialto Theatre Company for January 2019.

Answer 1

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Trial Balance				Income Statement
Accounts	Debit	Credit		Ticket Revenue		$   148,500
				Concession Revenue		$        5,500
Cash	$   134,450			Total Revenue		$   154,000
Accounts Receivable	$           500			Less: Operating Expense
Supplies	$        9,200			Rent Expense	$ 45,000
Land	$   300,000			Advertising Expense	$    8,000
Equipment	$   339,500			Insurance Expense	$ 30,000
Building	$   375,000			Miscellaneous Expense	395000%
Accounts Payable		$     46,100		Utilities Expense	$    6,000
Mortgage Payable		$   600,000		Wages Expense	$ 48,500
Capital Stock		$   500,000		Total Operating Expense		$ -141,450
Ticket Revenue		$   148,500		Net Income		$     12,550
Concession Revenue		$        5,500
Rent Expense	$     45,000			Balance Sheet
Advertising Expense	$        8,000
Insurance Expense	$     30,000			Assets
Miscellaneous Expense	$        3,950			Current Assets
Utilities Expense	$        6,000			Cash		$   134,450
Wages Expense	$     48,500			Accounts Receivable		$           500
				Supplies		$        9,200
				Total Current Assets		$   144,150
Total	$1,300,100	$1,300,100		Land		$   300,000
				Equipment		$   339,500
Acid Test Ratio:				Building		$   375,000
Quick Assets	$   144,150	a		Total Assets		$1,158,650
Current Liabilities	$     46,100	b
Acit Test Ratio	3.13	a/b		Liabilities
				Current Liabilities:
Asset Turnover Ratio:				Accounts Payable		$     46,100
				Total Current Liabilities		$     46,100
Net Sale	$   154,000	a
Total Assets	$1,158,650	b		Mortgage Payable		$   600,000
Asset Turnover Ratio	13.29%	a/b		Total Liabilities		$   646,100
Return on Equity:				Capital Stock		$   500,000
				Retained Earning		$     12,550
Net Income	$     12,550	a		Total Equity		$   512,550
Total Equity	$   512,550	b		Total Liabilities and Equity		$1,158,650
Return on Equity	2.45%	a/b