problem 1 widget company has the following adjusted trial balance at december 31 200 3835397
WIDGET Company has the following adjusted trial balance at December 31, 2006. No dividends have been declared.
Accrued Expenses Payable
Income Taxes payable
Unearned rent revenue
Income Tax Expense
Â Â Â Â TOTAL
Q1. Prepare in proper form an income statement for 2006.Â Widget Companyâ€™s core operations related to computer technology.Â How much net income did Widget Company generate during 2006?
Q2. Prepare in proper form a statement of retained earnings for 2006.
Q3. Prepare in proper from a balance sheet on December 31, 2006.Â Are the companyâ€™s assets financed primarily by debt or equity?
Q4. Prepare the closing journal entries on December 31, 2006.
The comparative financial statements for Joeâ€™s Company showed the following summarized data:
Increase (Decrease) 2004 over 2003
2003Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â AmountÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Percentage
Cost of Goods sold
Income before income taxes
Income tax expense (30%)
Accounts receivable (net)
Property and equipment (net)
Income taxes payable
Note payable, long term
Capital stock (par $10)
Total liabilities and equity
1. Complete the final two columns shown beside each item in the comparative financial statements above.Â Does anything jump out at you from the year over year analysis?
2. Given the data above, compute the following:
a. Compute the gross profit percentages in 2004 and 2003. Is the trend going in the right direction?
b. Compute the net profit margin ratios in 2004 and 2003. Is the trend going in the right direction?
c. Compute the earnings per share for 2004 and 2003. Does the trend look good or bad? Explain.
d. Stockholdersâ€™ equity totaled $100,000 at the end of 2002. Compute the return on equity ratios for 2004 and 2003. Is the trend going in the right direction?
e. Net property and equipment totaled $110,000 at the end of 2002. Compute the fixed asset turnover ratios for 2004 and 2003. Is the trend going in the right direction?
f. Compute the debt-to-assets ratios for 2004 and 2003. Is debt providing financing for a larger or smaller proportion of the companyâ€™s asset growth? Explain.
g. Compute the times interest earned ratios for 2004 and 2003. Do they look good or bad?Â Explain.
h. After Joe released its 2004 financial statements, the companyâ€™s stock was trading at $18.Â After the release of its 2003 financial statements, the companyâ€™s stock price was $15 per share.Â Compute the P/E ratios for both years. Does it appear that investors have become more (or less) optimistic about Joeâ€™s future success?