Solar Solutions began operations on January 1, 2015, and is now in its sixth year of operations. It is a retail sales company with a large amount of online sales. The adjusted trial balance as of December 31, 2020 appears below, along with prior year balance sheet data and some additional transaction data for 2020. Account Title Cash Accounts Receivable Prepaid Insurance Inventory Office Equipment Machinery & Tools Accumulated Depreciation Accounts Payable Salaries Payable Sales Tax Payable Note Payable-Long Term Common Stock, $10 par Retained Earnings Dividends Sales Revenue Cost of Goods Sold Rent Expense Salaries Expense Insurance Expense SOLAR SOLUTIONS Adjusted Trial Balance 12/31/2020 $ 2020 Adjusted Trial Balance Debit Credit 122,200 55,000 5,000 46,000 63,000 59,000 10,000 127,600 20,000 36,000 11,800 21,000 11,200 2,600 2,000 31,000 240,000 28,600 235,000 $ 2019 Post-Closing Trial Balance Credit Debit 125,600 35,000 6,000 15,600 47,000 21,000 16,000 16,800 2,700 4,000 22,100 160,000 28,600
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
![Solar Solutions began operations on January 1, 2015, and is now in its sixth year of operations. It is a retail sales company with a large amount of online sales.
The adjusted trial balance as of December 31, 2020 appears below, along with prior year balance sheet data and some additional transaction data for 2020.
SOLAR SOLUTIONS
Adjusted Trial Balance
12/31/2020
2020
2019
Account Title
Is 125,600
Adjusted Trial Balance
Debit
122,200
Post-Closing Trial Balance
Debit
125,600
Credit
Credit
35,000
Cash
6,000
|Accounts Receivable
Prepaid Insurance
55,000
35,000
15,600
5,000
46,000
63,000
6,000
47,000
21,000
15,600
47,000
21,000
Inventory
Office Equipment
Machinery & Tools
Accumulated Depreciation
Accounts Payable
Salaries Payable
Sales Tax Payable
Note Payable-Long Term
Common Stock, $10 par
Retained Earnings
Dividends
|Sales Revenue
|Cost of Goods Sold
(16,000)
$ 234,200
59,000
21,000
16,000
11,200
2,600
16,800
2,700
2,000
4,000
31,000
22,100
240,000
160,000
28,600
28,600
10,000
235,000
127,600
20,000
Rent Expense
Salaries Expense
Insurance Expense
Advertising Expense
Depreciation Expense
Interest Expense
Income Tax Expense
36,000
11,800
6,000
5,000
1,800
3,000
571,400 $ 571,400 $ 250,200
250,200
Transaction Data for 2020 (Note, these transactions were included in the trial balance numbers above.)
Cash paid for purchase of office equipment
Cash paid for purchase of tools
6,000
10,000
Acquisition of Machinery with Notes Payable-Long-term
38,000
Payment on Long Term Debt
Cash payment of dividends
10,000
Cash receipt from issuance of 10,000 shares of common stock
80,000](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ff4ed74fd-f67c-4818-b7b1-25d2d307c13a%2Fbf62d719-f7e3-4cd7-96cf-f7fbd2cdb6b1%2Ft8nlkv_processed.png&w=3840&q=75)
![Requirement 1. Compute
these ratios:
Working
Capital
Current
Debt-to-
Ratio
Cash Ratio
Debt Ratio Equity Ratio
Round ratios to two
14.44
212400
7.73
decimal places or
format as percentages or
Accounts
Days Sales
currency as appropriate.
Inventory
Days Sales in
Gross ProfitReceivable
in
Turnover
Inventory
Percentage
Turnover
Receivables
2019 Total Assets =
Rate of
Rate of
Asset
Return on
Return on
Turnover
Stockholders'
Earnings
Total Assets
Ratio
Equity
Per Share
2019 SHE =
Price/
Earnings
*Current Stock Price is
Dividend
$10.00 per share
Ratio*
Dividend Yield
Payout
Dividend per share=
Requirement 2. Based on
the ratios computed above,
analyze the company's
ability to pay its debts (both
current and long term).
Refer to at least 3 specific
ratios in your analysis.
Requirement 3: Based on
the ratios computed above,
analyze the company's
management of inventory.
Refer to at least 2 specific
ratios in your analysis.
Requirement 4: Based on
the ratios computed above,
analyze the company's
management of receivables.
Refer to at least 2 specific
ratios in your analysis.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ff4ed74fd-f67c-4818-b7b1-25d2d307c13a%2Fbf62d719-f7e3-4cd7-96cf-f7fbd2cdb6b1%2Figef9kb_processed.png&w=3840&q=75)
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