Chapter 5, Problem 5PSA

To determine

Concept Introduction:

Adjusting entries

Adjusting entries are prepared to complete the financial statement of the company and to reflect the accrual method of accounting. Adjusting entries are prepared before issuance of financial statement.

To prepare:

To prepare adjusting journal entry.

To determine

Concept Introduction:

Multiple-step Income statement

Multiple step income statement is one of the format of preparing income statement. Another format of preparing income statement is single step income statement.

Multiple step income statement provides more information than a single step income statement. It involves more than one deduction.

To prepare:

To prepare multiple step income statement.

To determine

Concept Introduction:

Single-step Income statement

Single-step income statement is one of the format of preparing income statement. Another format of preparing income statement is multiple- step income statement.

In single step income statement, all the expenses included cost of goods sold is recorded in one column. Expenses are not divided into sub-categories.

To prepare:

To prepare single step income statement.

To determine

Concept Introduction:

Current ratio

Current ratio is a ratio which helps to measure the ability of company to pay the obligations of the company. It is calcuated by using following formula

  $Currentratio=Currentassets/Currentliabilities$

Acid-test ratio

It is a ratio which measures the ability of company to use its short term cash to repay the liabilities immediately. It is calcuated by using following formula

  $Acid-testratio=Quickassets/Currentliabilities$

Gross margin ratio

Gross margin ratio assesses the profitability of the company by stating gross margin as a percenatge of sales. It is calculated by usimg following formula-

  $Grossmarginratio=\frac{Grossmargin}{Netsales}*100$

To Calculate:

To compute current ratio, Acid test ratio, Gross margin ratio.