On January 1, 2021, the general ledger of TNT Fireworks includes the following account balances:Accounts                                              Debit               CreditCash                                                     $ 58,700Accounts Receivable                               25,000Allowance for Uncollectible Accounts                         $ 2,200Inventory                                                36,300Notes Receivable (5%, due in 2 years)   12,000Land                                                     155,000Accounts Payable                                                        14,800Common Stock                                                          220,000Retained Earnings                                                        50,000Totals                                                  $ 287,000       $ 287,000During January 2021, the following transactions occur:January 1 Purchase equipment for $19,500. The company estimates a residual value of $1,500 and a five-year service life.January 4 Pay cash on accounts payable, $9,500.January 8 Purchase additional inventory on account, $82,900.January 15 Receive cash on accounts receivable, $22,000January 19 Pay cash for salaries, $29,800.January 28 Pay cash for January utilities, $16,500.January 30 Firework sales for January total $220,000. All of these sales are on account.The cost of the units sold is $115,000.Required:1. Record each of the transactions listed above.2. Record adjusting entries on January 31.a. Depreciation on the equipment for the month of January is calculated using the straightline method.b. At the end of January, $3,000 of accounts receivable are past due, and the company estimates that 50% of these accounts will not be collected. Of the remaining accounts receivable, the company estimates that 3% will not be collected. The note receivable of $12,000 is considered fully collectible and therefore is not included in the estimate of uncollectible accounts.c. Accrued interest revenue on notes receivable for January.d. Unpaid salaries at the end of January are $32,600.e. Accrued income taxes at the end of January are $9,000.3. Prepare an adjusted trial balance as of January 31, 2021, after updating beginning balances (above) for transactions during January and adjusting entries at the end of January.4. Prepare a multiple-step income statement for the period ended January 31, 2021.5. Prepare a classified balance sheet as of January 31, 2021.6. Record closing entries.7. Analyze how well TNT Fireworks manages its assets:a. Calculate the return on assets ratio for the month of January. If the average return on assets for the industry in January is 2%, is the company more or less profitable than other companies in the same industry?b. Calculate the profit margin for the month of January. If the industry average profit margin is 4%, is the company more or less efficient at converting sales to profit than other companies in the same industry?c. Calculate the asset turnover ratio for the month of January. If the industry average asset turnover is 0.5 times per month, is the company more or less efficient at producing revenues with its assets than other companies in the same industry?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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On January 1, 2021, the general ledger of TNT Fireworks includes the following account balances:

Accounts                                              Debit               Credit
Cash                                                     $ 58,700
Accounts Receivable                               25,000
Allowance for Uncollectible Accounts                         $ 2,200
Inventory                                                36,300
Notes Receivable (5%, due in 2 years)   12,000
Land                                                     155,000
Accounts Payable                                                        14,800
Common Stock                                                          220,000
Retained Earnings                                                        50,000
Totals                                                  $ 287,000       $ 287,000

During January 2021, the following transactions occur:

January 1 Purchase equipment for $19,500. The company estimates a residual value of $1,500 and a five-year service life.
January 4 Pay cash on accounts payable, $9,500.
January 8 Purchase additional inventory on account, $82,900.
January 15 Receive cash on accounts receivable, $22,000
January 19 Pay cash for salaries, $29,800.
January 28 Pay cash for January utilities, $16,500.
January 30 Firework sales for January total $220,000. All of these sales are on account.
The cost of the units sold is $115,000.

Required:
1. Record each of the transactions listed above.
2. Record adjusting entries on January 31.
a. Depreciation on the equipment for the month of January is calculated using the straightline method.
b. At the end of January, $3,000 of accounts receivable are past due, and the company estimates that 50% of these accounts will not be collected. Of the remaining accounts receivable, the company estimates that 3% will not be collected. The note receivable of $12,000 is considered fully collectible and therefore is not included in the estimate of uncollectible accounts.
c. Accrued interest revenue on notes receivable for January.
d. Unpaid salaries at the end of January are $32,600.
e. Accrued income taxes at the end of January are $9,000.
3. Prepare an adjusted trial balance as of January 31, 2021, after updating beginning balances (above) for transactions during January and adjusting entries at the end of January.
4. Prepare a multiple-step income statement for the period ended January 31, 2021.
5. Prepare a classified balance sheet as of January 31, 2021.
6. Record closing entries.
7. Analyze how well TNT Fireworks manages its assets:
a. Calculate the return on assets ratio for the month of January. If the average return on assets for the industry in January is 2%, is the company more or less profitable than other companies in the same industry?
b. Calculate the profit margin for the month of January. If the industry average profit margin is 4%, is the company more or less efficient at converting sales to profit than other companies in the same industry?
c. Calculate the asset turnover ratio for the month of January. If the industry average asset turnover is 0.5 times per month, is the company more or less efficient at producing revenues with its assets than other companies in the same industry?

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