Xacc 280 Week 2 Mini Case Solution

From the website, access file 3b, which has the unadjusted trial balance with the accounts in proper order. This file also contains an accounting “system” comprised of a series of linked spreadsheets. The linkages enable the effects of all accounting entries (journal, adjusting, and closing) to flow through to spreadsheets for the income statement, balance sheet, and statement of cash flows. You notice that for the fiscal year ended December 31, 2012, someone has made all the journal entries but none of the adjusting or closing entries.

E5-12 (Preparation of a Balance Sheet) Presented below is the trial balance of Vivaldi Corporation at December 31, 2012.

1. A company’s ending accounts receivable balance and the period’s advertising expense would be found on which financial statements, respectively

Buying a share of stock from a corporation, receiving dividends in addition to capital gains would be what I would be expecting. I would be expecting to receive my dividends four times a year and my capital gains as soon as stocks are sold. Of course because of the nature of the business world and how risky stocks are, I wouldn’t expect my expectations to be met a 100%.

4) Each statement should be on a separate worksheet and all worksheets should be linked (Income from the Income statement is linked to the Statement of Retained Earnings). Work should be completed using Microsoft Excel. All worksheets should be in printable form.

Financial statements provide lenders, investors, and shareholders insight to the overall health of an organization, and serve as tools to provide direction. There are seven accounts that make up financial statements. Three accounts are referred to as permanent accounts: assets, liabilities, and owners’ equity. A permanent account reflects an amount of money on a specific date, and it always has a balance. The four remaining accounts: revenues, expenses, gains, and losses, are referred to as temporary accounts. They reflect activity and amounts of money for transactions that have occurred over a period of time.

a. Current ratio is known as the company’s ability to pay back their debits and obligations. The current ratio of .98 which is under 1 means the company would not be able to pay of the obligations that it owes. This shows the company is not in good standing and will cause more risk, if invested into.

Companies close their books at the end of each accounting period in order to transfer the balance in temporary accounts into retained earnings. The closing process brings the retained earnings account up to date so that it accurately reflects the current period’s income statement activity and dividends so that the balance sheet can be prepared. The types of accounts that are closed in the process are all the income statement accounts and any dividend account.

The first of the liquidity ratios is the current ratio. The current ratio is the number of times that current assets exceed current liabilities. It is calculated by dividing the company’s current assets by their current liabilities. In most circumstances, the higher the current ratio, the better. The ratio is an excellent indication of the company’s ability to pay its short-term debts. A decline in the current ratio could imply that the company is having trouble generate cash, it could also be a result of increases of short-term debt, and/or a decrease in current assets. An improvement in the current ratio implies that the company has an increased ability to pay off current liabilities. As current ratio declines, the overall risk increases, and as it improves, the risk declines. From 2013 to 2014, Coke’s current ratio dropped from 1.13 to 1.02 before rising to 1.24 in the most recent year of 2015. However, compared to Pepsi’s ratio of 1.31, Coke’s current ratio is lower. To increase their ratio to be more competitive with their benchmark, Coke could use long-term borrowing to pay off some of their current liabilities.

Current Ratio: measures if company can pay its short-term responsibilities. It is used to show if the company has the ability to pay back his short-term liabilities. As high the current ratio is so accomplished is the company to pay. When the ratio is less than 1 it means that the company can not pay its obligations (http://www.investopedia.com/terms/c/currentratio.asp).

Theoretically, current ratio of 1 means that the company have cash and cash equivalents that are equal to current debt. Current ratio above 1 defines that company has sufficient cash and cash equivalents to pay back the current liabilities. While current ratio below 1 define that company lack of cash and cash equivalents to pay back the current liabilities.

The financial statements measure the liquidity and the strength of a business. On the balance sheet; offsets calculate the real value of accounts receivables and fixed assets. Uncollectible accounts receivables and depreciation reflect the offsets reported on financial statements. In accordance with generally accepted accounting principles (GAAP); two methods compute the uncollectible accounts receivable expense. Just like uncollectible accounts offset the value of accounts receivables; so do depreciation expenses counteract the value of fixed assets. Also called contra accounts, the journal entries accumulate and are then recorded on the balance sheet.

CURRENT RATIO show a company’s ability to pay its current obligations that is company’s liquidity. The current ratio position is lower for Honda at 0.33 than for Toyota at 1.22 in 2010. Honda has a large portion of receivables in assets both in trade, notes receivables and finance receivables. It has a huge portion of cash as well. This indicates the company has no problem in terms of generating a positive influx of assets. But in terms of liabilities it has a large portion of short term debt which makes almost 1/3rd of total Current liabilities. Also there is a significant portion of Long Term debt. The higher level of liabilities in the denominator reduces the overall ratio.

Current Ratio measures the ability of a firm to pay its short-term debts. The formula is:

At the end of an accounting period, it is customary to close all the accounts, extract a trial balance, and then prepare the set of final accounts : the income statement and the balance sheet.