Chapter 3, Problem 11PSB

To determine

Income Statement:

It is a financial statement that shows the profit and loss made by the firm in a particular accounting period.

Retained Earnings:

It is a financial statement that shows the amount of profit retained by the company for future unforeseen events.

Balance Sheet:

It shows the financial position of an enterprise. It consists of assets, liabilities, and stockholders’ equity of the enterprise.

Closing Entries:

These entries are made for that item whose balance needs to be zero for the next accounting period otherwise data from two accounting periods will get mixed and we only want to see the data of one accounting period in it.

Accounting rules regarding journal entries:

• Balance increases when: Assets, losses, and expenses get debited and liabilities, gains, and revenue get credited.
• Balance decrease when: Assets, losses, and expenses get credited and liabilities, gains, and revenue get debited.

Return on Asset:

It tells about how much the company is earning from the total amount of assets it has. It is determined by dividing net income from total average assets into percentage terms.

Debt Ratio:

It shows how much of the company’s assets are bought using debt capital. The higher the debt ratio higher the financial risk, lower the debt ratio lower the financial risk. it comes after dividing debt capital by total assets.

Profit Margin Ratio:

It shows how much the company is earning for every dollar of its revenue. It comes after dividing net sales from revenue into percentage terms.

Current Ratio:

It shows whether the company will be able to pay its current liabilities out of its current asset or not. It comes after dividing current liabilities by current assets.

1.

To prepare: Income statement, statement of retained earnings, and classified balance sheet.

2.

To determine

To prepare: Closing entries

3.

a.

To determine

Return on assets ratio.

b.

To determine

Debt ratio.

c.

To determine

Profit margin ratio.

d.

To determine

Current ratio.