Chapter 3, Problem 8PSA

To determine

Income Statement:

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

Statement of retained earnings:

It is a financial statement which shows the amount of profit retained by the company for their 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 is made for those item whose balance need to be zero for next accounting period otherwise data of two accounting periods will get mix with each other and we only want to see the data of one accounting period in it.

Return on asset:

It tells us about how much company is earning from total amount of asset it has. It is determined by dividing net income from total average assets in 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. 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 company is earning for every dollar of their revenue. It comes after dividing net sales from revenue in percentage terms.

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

Current ratio:

It shows whether company will be able to pay their current liabilities out of their current asset or not. It comes after dividing current liabilities from 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.