Mgmt 210 2-4 assignment homework 2

Problem 2-3 Classified Balance Sheet
The following balance sheet items, listed in alphabetical order, are available from the records of Ruth Corporation at December 31, 2012:

Accounts payable                    $ 18,255          Income taxes payable                         6,200
Accounts receivable                   23,450          Interest payable                                   1,500
Accumulated depreciation                               Inventory                                            45,730

—automobiles                                       22,500           Land                                                    250,000
Accumulated depreciation                               Long-term investments                                    85,000
—buildings                              40,000                         Notes payable, due June 30, 2015       10,000
Automobiles                            112,500           Office supplies                                                2,340
Bonds payable, due                                         Paid-in capital in excess of par value   50,000

December 31, 2018                 160,000           Patents                                                 40,000
Buildings                                 200,000           Prepaid rent                                         1,500
Capital stock, $10 par value    150,000           Retained earnings                                311,095
Cash                                        13,230             Salaries and wages payable                  4,200

Required
1. Prepare in good form a classified balance sheet as of December 31, 2012.
2. Compute Ruth’s current ratio.
3. On the basis of your answer to (2), does Ruth appear to be liquid? What other information do you need to fully answer that question?

Hint: First determine if an account is an Asset (current or long-term), a Liability (current or long-term), or Stockholders’ Equity, then put a check mark by each item as you use it in preparing the financial statement to be sure you account for everything. Format is important including proper heading so users of the statement know what they are reading.

Problem 2-6 Single-Step Income Statement

The following income statement items, arranged in alphabetical order, are taken from the records of Shaw Corporation for the year ended December 31, 2012:

Advertising expense                $ 1,500                                    Interest expense           $ 1,400

Commissions expense                            2,415                                    Interest revenue           1,340

Cost of goods sold                   29,200                                     Rent revenue               6,700

Depreciation expense – office                                      Salaries and wages

building                                   2,900                           expense – office           12,560

Income tax expense                 1,540                           Sales revenue               48,300

Insurance expense –                                                    Supplies expense office 890

Salesperson’s auto                   2,250

Required

1. Prepare a single-step income statement for the year ended December 31, 2012.

2. What weaknesses do you see in this form for the income statement?

Hint: First determine if the account is revenue or expense. Is it operating revenue or other revenue? Is it operating expense or other expense? Then again mark them off as you use them in the financial statement to be sure you don’t miss anything.

Problem 2-7 Multiple-Step Income Statement and Profit Margin

Refer to the list of income statement items in Problem 2-6. Assume that Shaw Corporation classifies all operating expenses into two categories: (1) selling and (2) general and administrative.

Required

1. Prepare a multiple-step income statement for the year ended December 31, 2012.

2. What advantages do you see in this form for the income statement?

3. Compute Shaw’s profit margin.

4. Comment on Shaw’s profitability. What other factors need to be taken into account to assess

Shaw’s profitability

 Hint: Same as for Problem 2-6.