
Concept explainers
Concept Introduction:
Income Statement:
Income Statement is the part of the financial statement which is prepared to calculate the net income earned by the organization. In the income statement, all expenses are subtracted from the revenues to calculate the net income. It is prepared for a particular period.
Requirement-1:
To Prepare:
The classified balance sheet for College Spirit at Dec. 31, 2019.

Answer to Problem 42E
The classified balance sheet for College Spirit at Dec. 31, 2019 is as follows:
College Spirit | ||
Balance Sheet | ||
As on Dec. 31, 2019 | ||
ASSETS | ||
Current Assets: | ||
Cash | $ 13,300 | |
Accounts Receivables | $ 6,700 | |
Prepaid Rent | $ 54,000 | |
Inventory | $ 481,400 | $ 555,400 |
Long Term Investment | $ 110,900 | |
Property, Plant and Equipment: | ||
Furniture | $ 88,000 | |
Less: | $ (23,700) | $ 64,300 |
Total Assets | $ 730,600 | |
LIABILITIES AND EQUITY | ||
LIABILITIES | ||
Current Liabilities: | ||
Income Taxes Payable | $ 11,400 | |
Accounts Payable | $ 104,700 | |
Notes Payable | $ 50,000 | |
$ 166,100 | ||
Long Term Liabilities: | ||
Bonds Payable | $ 180,000 | |
Equity: | ||
Common Stock | $ 300,000 | |
$ 84,500 | $ 384,500 | |
Total Liabilities and Equity | $ 730,600 |
Explanation of Solution
Balance sheet is a summary of Assets, Liabilities and equity accounts that reports the financial position of the business as on a specific date. Assets are further classifies into Current Assets, Long Term Investments, Plant Assets and Intangible assets. And Liabilities are further classified into Current Liabilities and Long term liabilities.
The classified balance sheet for College Spirit at Dec. 31, 2019 is prepared as follows;
College Spirit | ||
Balance Sheet | ||
As on Dec. 31, 2019 | ||
ASSETS | ||
Current Assets: | ||
Cash | $ 13,300 | |
Accounts Receivables | $ 6,700 | |
Prepaid Rent | $ 54,000 | |
Inventory | $ 481,400 | $ 555,400 |
Long Term Investment | $ 110,900 | |
Property, Plant and Equipment: | ||
Furniture | $ 88,000 | |
Less: Accumulated | $ (23,700) | $ 64,300 |
Total Assets | $ 730,600 | |
LIABILITIES AND EQUITY | ||
LIABILITIES | ||
Current Liabilities: | ||
Income Taxes Payable | $ 11,400 | |
Accounts Payable | $ 104,700 | |
Notes Payable | $ 50,000 | |
$ 166,100 | ||
Long Term Liabilities: | ||
Bonds Payable | $ 180,000 | |
Equity: | ||
Common Stock | $ 300,000 | |
Retained earnings | $ 84,500 | $ 384,500 |
Total Liabilities and Equity | $ 730,600 |
Concept Introduction:
Balance Sheet: The Balance sheet is a summary of Assets, Liabilities and equity accounts that reports the financial position of the business as on a specific date. Assets are further classifies into Current Assets, Long Term Investments, Plant Assets and Intangible assets. And Liabilities are further classified into Current Liabilities and Long term liabilities.
Income Statement:
Income Statement is the part of the financial statement which is prepared to calculate the net income earned by the organization. In the income statement, all expenses are subtracted from the revenues to calculate the net income. It is prepared for a particular period.
Requirement-2:
To Calculate:
The

Answer to Problem 42E
The working capital and current ratio for the company is as follows:
Working Capital | $ 389,300 | |
Current Ratio | 3.34 |
Explanation of Solution
The working capital and current ratio for the company is calculated as follows:
Current Assets: | ||
Cash | $ 13,300 | |
Accounts Receivables | $ 6,700 | |
Prepaid Rent | $ 54,000 | |
Inventory | $ 481,400 | |
Total Current Assets (A) | $ 555,400 | |
Current Liabilities: | ||
Income Taxes Payable | $ 11,400 | |
Accounts Payable | $ 104,700 | |
Notes Payable | $ 50,000 | |
Total Current Liabilities (B) | $ 166,100 | |
Working Capital (A-B) | $ 389,300 | |
Current Ratio (A/B) | 3.34 |
Concept Introduction:
Balance Sheet: The Balance sheet is a summary of Assets, Liabilities and equity accounts that reports the financial position of the business as on a specific date. Assets are further classifies into Current Assets, Long Term Investments, Plant Assets and Intangible assets. And Liabilities are further classified into Current Liabilities and Long term liabilities.
Income Statement:
Income Statement is the part of the financial statement which is prepared to calculate the net income earned by the organization. In the income statement, all expenses are subtracted from the revenues to calculate the net income. It is prepared for a particular period.
Requirement-3:
To Discuss:
The liquidity of the company.

Answer to Problem 42E
The firm is more liquid because its current ratio is higher than 2.
Explanation of Solution
The working capital and current ration as on Dec. 31, 2019 is calculated as follows:
Current Assets: | ||
Cash | $ 13,300 | |
Accounts Receivables | $ 6,700 | |
Prepaid Rent | $ 54,000 | |
Inventory | $ 481,400 | |
Total Current Assets (A) | $ 555,400 | |
Current Liabilities: | ||
Income Taxes Payable | $ 11,400 | |
Accounts Payable | $ 104,700 | |
Notes Payable | $ 50,000 | |
Total Current Liabilities (B) | $ 166,100 | |
Working Capital (A-B) | $ 389,300 | |
Current Ratio (A/B) | 3.34 |
The firm is more liquid because its current ratio is higher than 2.
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Chapter 1 Solutions
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