Chapter 3, Problem 3.64AP

LO 5

P3-63A (Learning Objective 5: Close the books, and evaluate retained earnings) The accounts of Valley Services. Inc., at January 31, 2018, are listed in alphabetical order.

Accounts payable…………………	$14,000	Interest expense…...............	$ 400
Accounts receivable.......................	5,000	Note payable, long term…..	15,400
Accumulated depreciation equipment……	7,000	Other assets long-term…….	14,400
		Prepaid expenses………….	6,600
Advertising expense…………………….	10,800	Retained earnings, January 31, 2017……………………	13,600
Cash……………………………………….	26,000	Salary expense ……………………………..	26,300
Common stock…………………………..	4,500	Salary payable…………….	2,300
Current portion of long-term note payable……………………………………	1,000	Service revenue……………	96,000
Depreciation expense—equipment	2,100	Supplies.............	2,400
Dividends declared………………………….	15,000	Supplies expense…………..	4,500
Equipment..........................................................	43,000	Unearned service revenue…….	2,700

Requirements

1. 1. All adjustments have been journalized and posted, but the closing entries have not yet been made. Journalize valley’s closing entries at January 31, 2018.
2. 2. Set up a T-account for Retained Earnings and post to that account. Then calculate Valley’s net income for the year ended January 31, 2018. What is the ending balance of Retained Earnings?
3. 3. Did Retained Earnings increase or decrease during the year? What caused the increase of the decrease?

LO 4, 6

P3-64A. (Learning Objectives 4, 6: Construct the financial statements; analyze and evaluate liquidity and debt-paying ability) Refer back to Problem 3-63A.

Requirements

1. 1. Use the valley Services data in Problem 3-63A to prepare the company’s classified balance sheet at January 31, 2018. Label total assets, total liabilities, and total liabilities and stockholder’s equity.
2. 2. Calculate Valley’s net working capital, current ratio, and debt ratio at January 31, 2018, rounding to two decimal places. At January 31, 2017, net working capital was $19,500, the current ratio was 1.80, and the debt ratio was 0.15. Did Valley’s ability to pay both current and total debts improve or deteriorate during the first year? Evaluate Valley’s debt position as strong or weak and give your reason.