How do I find the ratios, working capital and current ratio ? This is the only i
ID: 2460441 • Letter: H
Question
How do I find the ratios, working capital and current ratio ?
This is the only information I was given
General Information
a. On April 1, 2013 a 24-month insurance policy was purchased for $24,000.
b. On January 1, 2013 Hullie & Oates paid Gretsky Advertising $48,000 for three years of advertising services. Equal services are provided each year.
c. Hullie & Oates needed some additional storage space so on November 1, 2013 they rented a unit for an annual rate of $18,500. The entire amount was expensed when paid.
d. $5,800 of store supplies were purchased during the year and the asset store supplies was increased. $3,200 of these supplies were used during the year.
e. $7,775 of office supplies were purchased during the year and were immediately expensed. $1,250 of these supplies remained at the end of 2013.
f. On July 1, 2013, Hullie & Oates issued a 9-month note receivable to Shanahan Co. at an annual interest rate of 6%. Principle and interest will be paid at the end of the 9-months. The note was recorded in Notes Receivable and is the only note outstanding.
g. Depreciation for the year is based on the following:
- Straight line depreciation
- Store equipment – Assets were held for the entire year; Residual Value = $10,000; Service life is estimated to be 10 years.
- Office equipment – Assets were held for the entire year; Residual Value = $7,000; Service life is estimated to be 3 years.
h. Sales salaries of $8,400 and office salaries of $6,500 remained unpaid at 12/31/13.
i. On October 1, 2013, Hullie & Oates rented a portion of one store to Twist & Chase Co. The contract was for 6 months and Hullie & Oates required the 6 months of cash upfront on October 1st. The rent is being earned equally over the next 6 months. When cash was received, unearned rent was appropriately recorded.
j. The note payable was outstanding the entire year and a 6.5% interest rate exists on the note. No interest has been recorded for the year.
k. Based on past experience, Hullie & Oates calculates bad debt expense at 1% of net sales for the year.
worksheet:
Journal Entires
Hullie & Oates Company End of Period Worksheet For the Year Ended December 31, 2013 Unadjusted Adjusted Account Title Trial Balance Adjustments Trial Balance DR CR DR CR DR CR Cash 36,000 - 36,000 Accounts Receivable 72,850 - 72,850 Allowance for Doubtful Accounts 4,000 7,673 11,673 Interest Receivable - 1,200 1,200 Merchandise Inventory 160,500 - 160,500 Prepaid Insurance 24,000 - 9,000 15,000 Prepaid Advertising 48,000 16,000 32,000 Prepaid Rent - 15,417 15,417 Store Supplies 5,800 - 3,200 2,600 Office Supplies - - 1,250 1,250 Note Receivable 30,000 30,000 Store Equipment 350,000 - 350,000 Accumulated Depreciation - Store Equipment - 40,050 34,000 740,50 Office Equipment 125,000 - 125,000 Accumulated Depreciation - Office Equipment - 17,200 39,333 56,533 Accounts Payable - 85,200 85,200 Salaries Payable - - 149,000 14,900 Interest Payable - - 9,490 9,490 Unearned Rent - 40,000 20,000 20,000 Note Payable (final payment due 2017) - 146,000 146,000 Common Stock - 60,000 60,000 Retained Earnings - 333,825 333,825 Dividends 25,000 - 25,000 Sales - 788,350 788,350 Sales Returns and Allowances 12,800 - 12,800 Sales Discounts 8,300 - 8,300 Cost of Goods Sold 457,200 - 457,200 Sales Salaries Expense 94,650 - 8,400 103,050 Advertising Expense - 16,000 16,000 Depreciation Expense - Store Equipment - - 34,000 34,000 Store Supplies Expense - - 3,200 3,200 Miscellaneous Selling Expense 2,600 - 2,600 Office Salaries Expense 34,000 - 6,500 40,500 Rent Expense 18,500 - 15,417 3,083 Insurance Expense - - 9,000 9,000 Depreciation Expense - Office Equipment - - 39,333 39,333.33 Office Supplies Expense 7,775 - 1,250 6,525 Miscellaneous Administrative Expense 1,650 - 1,650 Rent Revenue - - 20,000 20,000 Interest Revenue 12,000 1,200 Interest Expense - - 9,490 9,490 Bad Debt Expense - - 7,673 7,673Journal Entires
Hullie & Oates Company Adjusting Journal Entries For the Year Ended December 31, 2013 Account Titles DR CR Insurance Expense (24,000/24)* 9 months 9,000 9,000 Advertising Expense (48,000/3) $16,000 $16,000 Prepaid Rent $15,417 Rent Expense (18,500/12*20) $15,417 Store Supplies Expenses 3,200 $3,200 Office Supplies 1,250 Office Supplies Expense $1,250 Interest Receivable (30000*6%)/12*6 $900 Interest Revenue $900 Depreciation Expense - Store Equipement $34,000 Depreciation Expense - Office Equipement $39,333 Accumulated Depreciation - Store Equipement (150,000-10,000) $34,000 Accumulated Depreciation - Office Equipement (125,000-7,000) $39,000 Sales Salaries Expense $8,400 Office Salaries Expense $6,500 Salaries Payable $14,900 Unearned rent (40,000/6)*3 $20,000 Rent Revenue $20,000 Interest Expense (148,000*6.5%) $9,490 Interest Payable $9,490 Bad Debts Expense (788,150-12,800)*1% $7,756 Allowance for Doubtful Accounts $7,756Explanation / Answer
Current assets = cash + Net accounts receivable + interest receivable + merchandise inventory + prepaid insurance + prepaid advertising + prepaid rent + store supplies + office supplies + notes receivable (issued for 9 months) = 36000 + (72850-11673) +1200+160500+15000+32000+15417+2600+1250+30000 = $355144
Current Liabilities = Accounts Payable+ salaries payable + interest payable + unearned rent = 85200+14900+9490+20000 = $129590
Working Capital = current assets – current liabilities = $355144 - $129590 = $225554
Current Ratio = Current Assets / Current liabilities = $355144 / $129590 = 2.74
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