Chapter 3, Problem 8PSB

To determine

Income Statement:

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

Retained Earnings:

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

Balance Sheet:

It shows the financial position of an enterprise. It consists of asset, liabilities and stockholder’s equity of the enterprise.

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.

Accounting rules regarding journal entries:

• Balance increase when: Assets, losses and expenses get debited and liabilities, gains, and revenue get credited.
• Balance decrease when: Assets, losses and expenses get credited and liabilities, gains, and revenue get debited.

Return on Asset:

It tells 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.

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.

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.

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.

1.

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

2.

To determine

To prepare: Closing entries

3.

a.

To determine

Return on assets ratio.

b.

To determine

Debt ratio.

c.

To determine

Profit margin ratio.

d.

To determine

Current ratio.