$105,000 / 60,000 = 1
12/31/2011: $105,000 / 60,000 = 1.75
b. Decreased
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Question Company G has a ratio of liabilities to stockholders’ equity of 0.12 and 0.28 for 2010 and 2011, respectively. In contrast, Company M has
a ratio of liabilities to stockholders’ equity of 1.13 and 1.29 for the same period.
REQUIRED:
Based on this information, which company's creditors are more at risk and why? Should the creditors of either company fear the risk of
nonpayment?
Answer
Company M’s creditors are more at risk than are Company G’s creditors.The lower the ratio of liabilities to owner’s equity, the better able
the company is to withstand poor business conditions and pay its obligations to creditors. Without additional information, it appears that
the creditors of either company are well protected against the risk of nonpayment, because the ratios are relatively low for both. However,
the fact that both ratios are increasing over the period should be monitored for downturns in business conditions.
Question Given the following data:
Dec. 31,2012 Dec. 31,2011
Total liabilities $118,750 $104,000
Total owner’s equity 95,000 80,000
a. Compute the ratio of liabilities to owner’s equity for each year.
b. Has the creditors’ risk increased or decreased from December 31, 2011, to December 31, 2012?
Answer
a.
Dec. 31, 2012 Dec. 31,2011
Total liabilities $118,750 $104,000
Total owner’s equity 95,000 80,000
Ratio of liabilities to owner’s equity 1.250 1.30
($118,750/$95,000) ($104,000/$80,000)
Question For each of the following companies, identify whether they are a service, merchandising, or manufacturing business.
A.
Dillards
B.
Time Warner Cable
C.
General Motors
D.
Blockbuster
E.
Applebee’s
F.
Sony
G.
Best Buy
H.
Banana Republic
I.
H & R Block
Answer
A.
Merchandising
B.
Service
C.
Manufacturing
D.
Service
E.
Service / Manufacturing
F.
Manufacturing
G.
Merchandising
H.
Merchandising
I.
Service
Question Identify each of the following as either internal or external users of accounting information.
A.
Payroll Manager
B.
Bank
C.
President’s Secretary
D.
Internal Revenue Service
E.
Raw Material Vendors
F.
Social Security Administration
G.
Health Insurance Provider
H.
Managerial Accountant
A. Internal
B. External
C. Internal
D. External
E. External
F. External
G. External
H. Internal
Question Determine the missing amount for each of the following:
Assets
Liabilities
Owner's Equity
(a)
$13,000
$16,000
$55,000
(b)
$34,000
$39,000
$ 17,000
(c)
Answer
(a)$29,000
(b)$21,000
(c)$22,000
Question Identify each of the following as an (1) increase in owner's equity, or a (2) decrease in owner's equity.
(a)
Fees Earned
(b)
Wages Expense
(c)
Withdrawal
(d)
Lawn Care Revenue
(e)
Investment
(f)
Supplies Expense
Answer
(a)1
(b)2
(c)2
(d)1
(e)1
(f) 2
Question Selected transactions completed by a proprietorship are described below. Indicate the effects of each transaction on assets, liabilities,
and owner's equity by inserting "+" for increase and "-" for decrease in the appropriate columns at the right. If appropriate, you may insert more
than one symbol in a column.
A
L
OE
(a)
Received cash from owner as an additional investment
_____
_____
_____
(b)
Purchased supplies on account
_____
_____
_____
(c)
Paid rent for the current month
_____
_____
_____
(d)
Received cash for services sold to customers
_____
_____
_____
(e)
Returned some defective supplies purchased in (b)
_____
_____
_____
(f)
Paid insurance premiums in advance
_____
_____
_____
(g)
Paid cash to creditor for purchases in (b)
_____
_____
_____
(k)
Owner withdrew cash for personal use
_____
_____
_____
(l)
Recorded the cost of supplies used during the year
_____
_____
_____
(m)
Received invoice for electricity used
_____
_____
_____
(n)
Paid wages
_____
_____
_____
(o)
Purchased a truck for cash
_____
_____
_____
Answer
A
L
OE
(a)
+
+
(b)
+
+
(c)
-
-
(d)
+
+
(e)
-
-
(f)
+,-
(g)
-
-
(h)
+
+
(i)
-
-
(j)
+,-
(k)
-
-
(l)
-
-
(m) +
-
(n)
-
-
(o)
+,-
Question Schultz Tax Services, a tax preparation business had the following transactions during the month of June:
Example: Received cash the owner Schultz, $25,000.
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