Choose The Best Alternative That Completes The Sentence

Choose The One Alternative That Best Completes The State

QUESTION 1 · Choose The One Alternative That Best Completes The Statement or answers the question. Solve the problem. Prepare a balance sheet for Mullen's Hardware for December 31 of last year. The company assets are cash $15,000, accounts receivable $21,000, and merchandise inventory $95,000. The liabilities are accounts payable $12,000 and wages payable $17,000. The owner's capital is $102,000.

· · · Mullen's Hardware Balance Sheet · Total assets: $131,000 · Total liabilities: $29,000 · Total liabilities and owner's equity: $131,000 · · · · · Mullen's Hardware Balance Sheet · Total assets: $131,000 · Total liabilities: $12,000 · Total liabilities and owner's equity: $131,000 · · · · · Mullen's Hardware Balance Sheet · Total assets: $95,000 · Total liabilities: $12,000 · Total liabilities and owner's equity: $102,000 · · · · · Mullen's Hardware Balance Sheet · Total assets: $131,000 · Total liabilities: $17,000 · Total liabilities and owner's equity: $17,000

Paper For Above instruction

The task involves preparing and analyzing various financial statements for different companies, focusing on balance sheets and vertical analysis. Specifically, the first scenario requires constructing a balance sheet for Mullen’s Hardware as of December 31, considering given assets, liabilities, and owner's capital. The correct balance sheet will reflect total assets of $131,000 and total liabilities of $29,000, with owners' equity being the difference between assets and liabilities, which is $102,000.

In practice, a balance sheet presents a company’s financial position at a specific point in time, listing assets, liabilities, and equity. For Mullen's Hardware, assets include cash ($15,000), accounts receivable ($21,000), and inventory ($95,000), totaling $131,000. The liabilities include accounts payable ($12,000) and wages payable ($17,000), totaling $29,000. The owner's capital of $102,000 balances these figures. The correct balance sheet confirms: assets equal liabilities plus owner’s equity, validating the accounting equation.

Moving forward, the analysis continues with vertical analysis, which expresses each item on the balance sheet as a percentage of total assets. For example, if total assets are $131,000, then cash ($11,000) becomes approximately 8.4%, accounts receivable ($40,000) about 30.5%, and merchandise inventory ($96,000) roughly 73.3%. Similarly, liabilities are expressed as a percentage of assets, aiding in assessing the company's financial structure.

Another case involves Jake's Janitorial Service, requiring the construction of a balance sheet from provided asset and liability figures. The process entails summing assets ($20,000 cash, $48,000 receivables, $89,000 inventory, $82,000 equipment totaling $239,000) and liabilities ($13,000 accounts payable, $16,000 wages payable, $77,000 mortgage note payable totaling $106,000). The owner's capital is stated at $133,000, which should match the difference between total assets and total liabilities, ensuring accuracy.

The subsequent analysis includes calculating percentages for each item relative to total assets or sales, providing insights into the company's financial ratios, such as the debt-to-equity ratio, or inventory turnover. Metrics like gross profit, net income, and percentages of net sales for various companies are assessed to evaluate profitability and efficiency. For example, gross profit is calculated as net sales minus cost of goods sold, and profit margins are computed as gross profit divided by net sales.

This type of financial analysis is crucial for stakeholders to understand a company's operational efficiency, financial stability, and potential for growth. For instance, in the case of the Garden Shop, cost of goods sold as a percentage of net sales (39.7%) indicates the gross margin level, which can inform pricing or cost control strategies. Similarly, evaluating percentage changes over periods, such as sales growth or decline, helps identify trends and inform management decisions.

In summary, these exercises exemplify core financial accounting principles, including balance sheet preparation, vertical analysis, profitability calculations, and trend analysis. They serve as foundational skills for assessing a company's financial health and making informed business decisions.

References

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