Chapter 17, Problem 19P

To determine

(a)

The current ratio and explain if the company is financially healthy.

Answer to Problem 19P

The current ratio is $3.02$.

Since the current ratio is greater than $1$ ; the firm is financially healthy.

Explanation of Solution

Calculation:

Make the balance sheet and categorise as asset or liabilities.

Item	Amount	Location on Balance Sheet
Cash	$\$1740$	Current Asset
Net Accounts and Receivables	$\$2500$	Current Asset
Retailers Inventories	$\$900$	Current Asset
Bad Debt Provision	$-\$75$	Current Asset
Account Payable(Short Term)	$\$1050$	Current Liabilities
Notes Payable	$\$500$	Current Liabilities
Accrued Expenses	$\$125$	Current Liabilities

Calculate the current ratio.

$\text{Cuurent}\text{Ratio}=\left(\frac{\text{Cuurent}\text{Asset}}{\text{Current}\text{Liabilities}}\right)$ ........ (I)

Using the table, the total current asset is $\$5065$ and the total current liabilities is $\$1675$.

Substitute $\$5065$ for $\text{Current}\text{Asset}$ and $\$1675$ for $\text{Current}\text{Liabilities}$ in Equation (I).

$\begin{array}{c}\text{Current}\text{Ratio}=\frac{\$5065}{\$1675}\\ =3.02\end{array}$.

Conclusion:

Thus, the current ratio is $3.02$.

Since the current ratio is greater than $1$, the firm is financially healthy.

To determine

(b)

The balance sheet and construct them.

Answer to Problem 19P

The balance sheet is shown below.

J&W Graphic Supply	Balance Sheet
Assets
Current Assets	$2012$
Cash	$\$1740$
Accounts Receivable	$\$2500$
Inventories	$\$900$
Less Bad Debt Provision	$\$75$
Total Current Asset	$\$5065$
Fixed Asset	$2012$
Property and Equipment	$\$3575$
Less Accumulated Depreciation	$\$1060$
Total Fixed Asset	$\$2515$
Liabilities And Owner’s Equity
Current Liability	$2012$
Account Payable	$\$1050$
Notes Payable	$\$500$
Accured Expenses	$\$125$
Total Current Liabilities	$\$1675$
Owner’s Equity	$2012$
Stock	$680$
Capital Surplus	$\$45$
Retained Earning	$\$5180$
Total owner’s Equity	$\$5950$
Total owners and liabilities’ Equity	$\$7850$

Explanation of Solution

Calculation:

Make the balance sheet.

All amount are shown in $\$1000$.

J&W Graphic Supply	Balance Sheet
Assets
Current Assets	$2012$
Cash	$\$1740$
Accounts Receivable	$\$2500$
Inventories	$\$900$
Less Bad Debt Provision	$\$75$
Total Current Asset	$\$5065$
Fixed Asset	$2012$
Property and Equipment	$\$3575$
Less Accumulated Depreciation	$\$1060$
Total Fixed Asset	$\$2515$
Liabilities And Owner’s Equity
Current Liability	$2012$
Account Payable	$\$1050$
Notes Payable	$\$500$
Accured Expenses	$\$125$
Total Current Liabilities	$\$1675$
Owner’s Equity	$2012$
Stock	$680$
Capital Surplus	$\$45$
Retained Earning	$\$5180$
Total owner’s Equity	$\$5950$
Total owners and liabilities’ Equity	$\$7850$

Conclusion:

The balance sheet is shown below.

J&W Graphic Supply	Balance Sheet
Assets
Current Assets	$2012$
Cash	$\$1740$
Accounts Receivable	$\$2500$
Inventories	$\$900$
Less Bad Debt Provision	$\$75$
Total Current Asset	$\$5065$
Fixed Asset	$2012$
Property and Equipment	$\$3575$
Less Accumulated Depreciation	$\$1060$
Total Fixed Asset	$\$2515$
Liabilities And Owner’s Equity
Current Liability	$2012$
Account Payable	$\$1050$
Notes Payable	$\$500$
Accured Expenses	$\$125$
Total Current Liabilities	$\$1675$
Owner’s Equity	$2012$
Stock	$680$
Capital Surplus	$\$45$
Retained Earning	$\$5180$
Total owner’s Equity	$\$5950$
Total owners and liabilities’ Equity	$\$7850$

To determine

(c)

The total assets, total liabilities and total earning.

Answer to Problem 19P

The total asset is $\$7580000$.

The total liabilities is $\$1675000$.

The total earning is $\$5180000$.

Explanation of Solution

Calculation:

Make the balance sheet.

All amount are shown in $\$1000$.

J&W Graphic Supply	Balance Sheet
Assets
Current Assets	$2012$
Cash	$\$1740$
Accounts Receivable	$\$2500$
Inventories	$\$900$
Less Bad Debt Provision	$\$75$
Total Current Asset	$\$5065$
Fixed Asset	$2012$
Property and Equipment	$\$3575$
Less Accumulated Depreciation	$\$1060$
Total Fixed Asset	$\$2515$
Liabilities And Owner’s Equity
Current Liability	$2012$
Account Payable	$\$1050$
Notes Payable	$\$500$
Accured Expenses	$\$125$
Total Current Liabilities	$\$1675$
Owner’s Equity	$2012$
Stock	$680$
Capital Surplus	$\$45$
Retained Earning	$\$5180$
Total owner’s Equity	$\$5950$
Total owners and liabilities’ Equity	$\$7580$

From the table,

The total asset is $\$7580000$.

The total liabilities is $\$1675000$.

The total earning is $\$5180000$.

Conclusion:

Thus, the total asset is $\$7580000$.

The total liabilities is $\$1675000$.

The total earning is $\$5180000$.