The following items are taken from the adjusted trial balance of Sutch Video Pro
ID: 2394713 • Letter: T
Question
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’?
Explanation / Answer
(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
Service Revenue
145000
(-) Supplies Exp
6000
(-) Salary exp
34000
(-) Rent Exp
17000
(-) Insurance exp
3000
(-) Depreciation Exp
12000
(-) Advertising Exp
21000
Profit
52000
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