Identify the company with the strongest liquidity position. (These companies represent competitors in the same industry.)

Exercise 3-11 Computing and analyzing the current ratio LO A2

1. Compute the current ratio for each of the following companies. (Round your answers to 2 decimal places.)
 

 
2. Identify the company with the strongest liquidity position. (These companies represent competitors in the same industry.)
 

    Edison
    MAXT
    Chatter
    TRU
    Gleeson


Answer

Edison

Explanation

Current Ratio	=	Current Assets
		Current Liabilities

 
Analysis: Edison is in the strongest liquidity position. It has about $1.87 of current assets for each $1 of current liabilities. The only potential concern is that Edison may be carrying too much in current assets that could be better spent on more productive assets (note that its remaining competitors’ current ratios range from 1.03 to 0.45).

Use the following information to compute profit margin for each separate company a through e.

Exercise 3-10 Computing and interpreting profit margin LO A1

Use the following information to compute profit margin for each separate company a through e. (Round your answers to 1 decimal place.)

 

 

Which of the five companies is the most profitable according to the profit margin ratio?

 

    Company a
    Company b
    Company c
    Company d
    Company e



Answer
Company c

Explanation

Analysis and Interpretation: Company c has the highest profitability according to the profit margin ratio. Company c earns 35.0 cents in net income for every one dollar of net sales earned.

Use the above adjusted trial balance to prepare Wilson Trucking Company’s classified balance sheet as of December 31, 2017.

Exercise 3-9 Preparing a classified balance sheet LO C3

Account Title	Debit			Credit
Cash	$	6,500
Accounts receivable		11,500
Office supplies		6,298
Trucks		195,000
Accumulated depreciation—Trucks				$	40,170
Land		45,000
Accounts payable					10,500
Interest payable					16,000
Long-term notes payable					32,000
Common stock					18,000
Retained earnings					141,086
Dividends		15,000
Trucking fees earned					128,000
Depreciation expense—Trucks		25,910
Salaries expense		53,701
Office supplies expense		17,000
Repairs expense—Trucks		9,847
Totals	$	385,756		$	385,756

Use the above adjusted trial balance to prepare Wilson Trucking Company’s classified balance sheet as of December 31, 2017.

 

Explanation

Retained earnings is computed as:
                       
Beginning balance     $     141,086          
Plus: Net income ($128,000 – $25,910 – $53,701 – $17,000 – $9,847)           21,542          
Less: Dividends           (15,000     )    
Ending balance     $     147,628          

Following are Nintendo’s revenue and expense accounts for a recent March 31 fiscal year-end

Exercise 3-8 Preparing closing entries LO P4

Following are Nintendo’s revenue and expense accounts for a recent March 31 fiscal year-end (yen in millions). (Enter answers in millions.)

 
                 
Net sales     ¥     1,898,622    
Cost of sales           1,734,981    
Advertising expense           117,408    
Other expense, net           397,644    

 
Prepare the company's closing entries for its revenues and its expenses.

The following is the adjusted trial balance of Wilson Trucking Company.

Exercise 3-7 Preparing financial statements LO P3

The following is the adjusted trial balance of Wilson Trucking Company.

Account Title	Debit			Credit
Cash	$	6,600
Accounts receivable		16,500
Office supplies		2,000
Trucks		199,000
Accumulated depreciation—Trucks				$	40,994
Land		75,000
Accounts payable					10,600
Interest payable					3,000
Long-term notes payable					52,000
Common stock					16,000
Retained earnings					176,935
Dividends		19,000
Trucking fees earned					122,500
Depreciation expense—Trucks		26,441
Salaries expense		57,453
Office supplies expense		9,500
Repairs expense—Trucks		10,535
Totals	$	422,029		$	422,029

The Retained Earnings account balance is $176,935 at December 31, 2016.
 
(1) Prepare the income statement for the year ended December 31, 2017.





(2) Prepare the statement of retained earnings for the year ended December 31, 2017.