Chapter 3, Problem 10PSA

To determine

Income Statement:

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

Statement of retained earnings:

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

Balance Sheet:

The balance sheet concludes the assets invested in by the company as well as reports the liabilities and equity taken up, thus, showing the economic or financial status of the company.

Closing entries:

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

Return on asset:

It tells us 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.

  $\text{Return}\text{on}\text{asset}=\frac{\text{Net}\text{income}}{\text{Total}\text{average}\text{asset}}$

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.

  $\text{Debt}\text{ratio}=\frac{\text{Total}\text{debt}\text{capital}}{\text{Total}\text{assets}}$

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.

  $\text{Profit}\text{margin}=\frac{\text{Net}\text{income}}{\text{Service}\text{revenue}}\times 100$

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.

  $\text{Current}\text{ratio}=\frac{\text{Current}\text{assets}}{\text{Current}\text{liabilities}}$

1.

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

2.

To determine

To prepare: Journal entries to close the temporary accounts.

3.

a.

To determine

Return on assets ratio.

b.

To determine

Debt ratio.

c.

To determine

Profit margin ratio.

d.

To determine

Current ratio.