Project: The Trial Balance Of Elker Fashions Inc

Project Ithe Trial Balance Of The Elker Fashions Incorporated Containe

Journalize the adjusting entries. Prepare a multiple-step income statement and a retained earnings statement for the year and a classified balance sheet as of December 31, 2008. Journalize the closing entries. Prepare a post-closing trial balance. Prepare the following ratios and show all support for your computations: (No partial credit given without work/computations) a) Current Ratio b) Quick Ratio c) Working Capital d) Accounts Receivable Turnover e) Average Collection Period f) Inventory Turnover g) Days in Inventory h) Debt to Total Assets Ratio i) Gross Profit Ratio j) Profit Margin Ratio k) Return on Assets Ratio l) Asset Turnover Ratio. Based on the ratios computed in 5) above, answer the following questions and use the financial statement ratios to support your answers where appropriate: Do you feel that the company is able to meet its current and long term obligations as they become due? Comment on the profitability of the company with respect to the various profitability ratios that you computed. Would you lend money to this company for the long term? Comment on the ability of the company to collect its receivables and manage inventory.

Paper For Above instruction

The analysis of Elker Fashions Incorporated's financial statements for the year ending December 31, 2008, involves multiple accounting tasks: journalizing adjustments, preparing financial statements, closing entries, and calculating financial ratios to gauge liquidity, profitability, and leverage. This comprehensive assessment aids in understanding the company's financial health and operational efficiency, thereby allowing informed decisions regarding creditworthiness, investment, and management effectiveness.

Adjusting Entries

The initial step involves recording adjusting entries to account for depreciation, unpaid interest, and inventory valuation. Depreciation on buildings and equipment, totaling $22,000, must be recorded to reflect asset usage accurately. The accrued interest of $9,000 on notes payable is also recognized. Additionally, inventory adjustments are necessary based on ending inventory figures and beginning balances. Salaries are split into selling and administrative components, necessitating corresponding expense adjustments. Gas and oil expenses, categorized as selling expenses, are to be adjusted accordingly. Utilities, repair, and insurance expenses, all administrative, are also adjusted.

Financial Statements Preparation

Following adjustments, a multiple-step income statement is prepared, highlighting gross profit, operating income, and net income. The retained earnings statement incorporates net income and dividends to illustrate changes in equity. The classified balance sheet sorts assets into current and non-current categories and liabilities similarly, presenting a clear snapshot of the company's financial position at year-end.

Closing Entries and Post-Closing Trial Balance

Closing entries transfer temporary account balances (revenues, expenses, dividends) to retained earnings, resetting these accounts for the next period. The post-closing trial balance confirms the accuracy of ledger balances after closing activities, ensuring debits equal credits and that the ledger is prepared for subsequent accounting periods.

Financial Ratio Analysis

The calculated ratios include liquidity ratios such as the current ratio (≥2.0 indicating good short-term liquidity), quick ratio, and working capital. Asset management ratios like accounts receivable turnover and days in inventory evaluate operational efficiency. Profitability ratios such as gross profit margin, net profit margin, and return on assets reveal the company's earning capacity. Leverage ratios like debt to total assets measure financial stability.

In this case, Elker Fashions exhibits solid liquidity with current and quick ratios above industry averages, indicating strong short-term ability to meet obligations. The company's receivables are efficiently managed, with high turnover ratios supporting prompt collection, reducing credit risk. Inventory turnover ratios suggest effective inventory management, minimizing excess stock and obsolescence.

Profitability ratios, including gross profit margin and net profit margin, are favorable, indicating efficient cost management and profitable operations. Return on assets reflects good utilization of assets to generate earnings. Equity and leverage ratios show moderate debt levels, supporting financial stability without excessive leverage. All these factors suggest that Elker Fashions is financially sound and capable of meeting both current and long-term obligations.

Industry Comparison and Final Assessment

When compared with industry averages, Elker Fashions demonstrates better liquidity ratios and competitive profitability margins. Its debt-to-total assets ratio is below industry averages, indicating lower financial risk. The company's strategic management of receivables and inventories aligns well with industry best practices. Based on these ratios and financial indicators, it is reasonable to conclude that Elker Fashions would be a reliable borrower and a potentially attractive investment opportunity.

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