Final Project Requirements Using The Spreadsheet Found Here

Final Project RequirementsUsing The Spreadsheet Foundhereand Informati

Final Project Requirements Using the spreadsheet found here and information above, complete the following: Adjustment Data: One month's insurance coverage has expired. The company occupied the office space for the month of December. At the end of the month, $600 of office supplies are still available. Create journal entries to record the transactions that occurred during the month of December. (Completed in Unit 3) Prepare an unadjusted trial balance (Completed in Unit 3) Create adjusting journal entries at the end of the year, December 31 based on the adjustment data. Prepare an adjusted trial balance. Prepare an income statement, statement of stockholders' equity, and classified balance sheet. Create closing journal entries to close all temporary accounts. Prepare post-closing trial balance. In addition, answer TWO of the questions below in 1-2 fully developed paragraphs. A fully developed paragraph should have a major point with 3 to 5 support sentences.

One or two sentences is not acceptable or does not discuss the question. Be sure to show what you know!!! Trap Adventures, Inc. is looking for an accountant. In your own words, explain to Trap's hiring team the role of accountant and accounting within business. Provide examples of the expectations of the accountant.

Discuss the financial position of Trap Adventures, Inc. using the following ratios: Current ratio Return on equity: For each ratio, provide the calculation and an explanation of the meaning. Is this a positive or negative result for the Trap Adventures, Inc.? Using Trap Adventures, Inc.'s income statement, evaluate the operations for the month of December. Complete a common-size income statement using sales as the base number. What is the largest percentage? What is the smallest percentage? What recommendations could be made to increase Trap's net income? Currently, Trap Adventures, Inc. does not own any loans or bank notes (long-term liabilities). What would happen if Trap decides to obtain a bank loan for $25,000 to fund daily operations? How would this transaction impact the financial statements - which accounts would be affected? What is the debt to equity ratio? What does the debt to equity ratio represent?

Paper For Above instruction

Introduction

Accounting forms the backbone of any successful business by providing essential financial insights that guide management decisions, ensure regulatory compliance, and communicate financial health to stakeholders. For Trap Adventures, Inc., a growing company in the adventure tourism industry, understanding the role of an accountant and analyzing key financial ratios are critical to sustain growth, manage risks, and optimize profitability. This paper explores the fundamental functions of accounting, evaluates Trap's financial health through ratio analysis, and discusses strategic implications of external financing options.

The Role of the Accountant in Business

An accountant's role encompasses much more than just maintaining financial records; they are vital advisors who interpret financial data to inform strategic decisions. At Trap Adventures, Inc., the accountant prepares financial statements such as the income statement, balance sheet, and cash flow statement to provide a clear picture of the company’s financial position. They also ensure compliance with tax laws and assist in budgeting and forecasting to guide operational and investment decisions. Expectations include accurate recording of transactions, timely reporting, and insightful analysis to support management in increasing efficiency and profitability. For instance, during December, the accountant recorded transactions including revenue recognition, expenses, and adjustments for supplies and insurance, ensuring the company's financial statements accurately reflected its activity and position.

Financial Ratios and Their Significance

Two key ratios used to evaluate Trap Adventures’ financial health are the current ratio and return on equity (ROE). The current ratio is calculated as current assets divided by current liabilities. For example, if Trap had current assets of $50,000 and current liabilities of $20,000, the current ratio would be 2.5, indicating that the company has $2.50 in assets available to cover each dollar of liabilities. A ratio above 1 suggests adequate short-term liquidity, but excessively high ratios could imply inefficient asset utilization. Conversely, a ratio below 1 indicates potential liquidity issues, risking the company's ability to meet short-term obligations. The return on equity (ROE) measures profitability relative to shareholders’ equity, calculated as net income divided by shareholders’ equity. Suppose net income for December was $10,000 and shareholders’ equity was $50,000; the ROE would be 20%. A higher ROE indicates effective management in generating profits from shareholders’ investments, which is positive for Trap. However, a very high ROE should be evaluated cautiously if it’s driven by high leverage or risky activities.

Operational Evaluation Using Income Statement Analysis

Analyzing Trap's December income statement through a common-size format involves expressing each line item as a percentage of total sales. If sales amounted to $100,000, and cost of goods sold (COGS) was $60,000, then COGS would represent 60% of sales, illustrating the cost structure of operations. The largest percentage typically indicates the primary driver of expenses; in many cases, COGS or operating expenses dominate, such as wages, rent, or supplies. The smallest percentages could be administrative or miscellaneous expenses, which, if suppressed or inefficient, might be increased to support growth activities. To enhance net income, recommendations may include optimizing operational efficiencies, negotiating better supplier contracts, or increasing sales through targeted marketing strategies.

Financial Impact of Taking a Bank Loan

If Trap Adventures, Inc. assumes a $25,000 bank loan, this would introduce long-term liabilities into its financial statements. The cash account under assets would increase by $25,000, reflecting the inflow of funds. Correspondingly, the loan payable account under liabilities would increase, representing the acknowledged debt. This transaction improves liquidity in the short term but introduces debt obligations that impact future cash flows through interest and principal repayments. The debt-to-equity ratio, which compares total liabilities to shareholders' equity, would increase, indicating higher leverage. While leverage can amplify returns during good times, it also increases financial risk if earnings decline. The strategic decision to incur debt should weigh these factors, considering whether the additional funds will generate sufficient returns to cover associated costs.

Conclusion

Effective accounting enables Trap Adventures, Inc. to maintain financial transparency, assess operational efficiencies, and make informed decisions about growth strategies such as external financing. Ratio analysis provides insight into liquidity, profitability, and leverage, which are crucial for strategic planning and risk management. Considering future borrowing, the company must evaluate how increased leverage impacts its risk profile and financial stability. Overall, a comprehensive understanding of accounting principles and ratios supports Trap’s objective of sustainable growth in the adventure tourism market.

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