Statement of earnings and retained earnings.
Various balance sheet and statements of earnings accounts for Home Restoration Outlet Ltd. are listed below in random order.
- Determine which account goes in which statement to solve the questions.
The balance sheet accounts are as of December 31, 2005, except as noted. The statement of earnings amounts are for the year January 1 to December 31, 2005. All accounts are shown in thousands of dollars.
1) Prepare a statement of earnings, a statement of retained earnings, and a balance sheet.
2) Explain the relationship between financial statements and why it is useful for managers to understand all three.
3) Perform a “current ratio” analysis for the company and explain the company’s liquidity position.
Balance sheet and statement of earnings accounts
- Cash $40
- Retained earnings, Dec 31, 2004 $255
- Inventory, Dec 31, 2004 $425
- Note payable, due Feb 2006 $25
- Selling expenses $482
- Accounts payable $85
- Accounts receivable $104
- Sales $2,409
- Income tax rate 50%
- Building and equipment, cost $150
- Dividends $70
- Total Long term loan, due June 2015 $110 2006 portion $10 ($10 of the $110)
- Purchases $1,304
- Income tax payable $25
- Marketable securities $30
- Depreciation expense, building and equipment $23
- General and administrative expenses $215
- Cost of goods sold $1,419
- Goodwill $85
- Other expenses, interest $20
- Prepaid expenses $42
- Common stock $130
- “Accumulated depreciation,
build. & equip. Dec 31, 2004” $53