Calculate the current ratio and quick ratio for ferentz

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Reference no: EM13845592

Part -1:

1. Notes payable

Robertson Co. owes a creditor $54,000 for merchandise purchased on account. The account is past due, but Robertson isn't prepared to pay the creditor yet. Instead, Robertson issued a 30-day, 12% note for $54,000 to the creditor on account on January 1.

Complete the journal entries that record Robertson's issuance of the note on January 1 and the payment of the note at maturity-including interest-on January 31. To simplify, assume a 360-day year. Use Smart Entry when selection lists are not available.

On June 15, Robertson Co. issued a 90-day, $57,000 note to a different creditor in exchange for cash. The note was discounted at 6%.

Complete the journal entries that record the note's issuance and the payment of the note at maturity on September 13. To simplify, assume a 360-day year. Use Smart Entry when selection lists are not available.

2. Accounting for contingent liabilities

Draper warrants its products for one year. Draper estimates the cost of repairs for the warranty period to be 5% of sales. Assume that sales were $260,000 for August.

Journalize the entry to record the estimated product warranty expense for August. Use Smart Entry when selection lists are not available.

In September, a customer returned an item under warranty, and the company replaced a defective part with another part that cost $390. Draper records spare parts in Supplies.

Journalize the entry to record the warranty cost for this return in September. Use Smart Entry when selection lists are not available.

3. Evaluating liquidity - Quick ratio and current ratio

You are a financial analyst for a large investment banking firm, and your manager has asked you to evaluate the liquidity of Ferentz Co. on April 30, 2013, compared with April 30, 2012.

Selected financial information from Ferentz Co.'s balance sheets follows.


2013 2012
Current Assets

Cash $97,200 $148,500
Temporary investments 145,800 123,750
Accounts receivable 243,000 222,750
Inventories 540,000 275,000
Total current assets $1,026,000 $770,000
Current Liabilities

Accounts payable $324,000 $357,500
Unearned revenue 162,000 110,000
Current portion of long-term debt 54,000 82,500
Total current liabilities $540,000 $550,000

Calculate the current ratio and quick ratio for Ferentz for 2013 and 2012. (Note: Round answers to one place after the decimal point.)

According to your calculations, the current ratio for Ferentz Co. on April 30, 2013, is the current ratio on April 30, 2012. So, according to the current ratio, Ferentz Co.'s ability to pay its debts in the short term has year to year.

Comparing the quick ratio year to year, you would infer that Ferentz Co. is liquid on April 30, 2013.

Part -2:

1. Forming a partnership

Jake Hamilton and Allen Clay, two local businesspeople, have agreed to form a partnership. Clay has agreed to contribute the following assets to the partnership: cash, $10,420; accounts receivable with a face amount of $25,980 and an allowance for doubtful accounts of $2,800; inventory, $37,480; and a building with a cost of $52,200 and accumulated depreciation of $10,440. Clay also has accounts payable of $21,744 that will be assumed by the partnership.

Hamilton and Clay had the building appraised prior to forming the partnership and determined that the market value is $104,000 and that the market value of the inventory is $31,180. In addition, the partners agreed that $5,196 of the accounts receivable are worthless and should not be accepted by the partnership and that the allowance for the remaining accounts should be $5,600.

When Clay contributes to the partnership, what is the amount of total assets that will be recorded?

  • $139,040
  • $88,700
  • $110,444
  • $160,784

When Clay contributes to the partnership, what will be the balance in Clay's capital account?

  • $88,700
  • $139,040
  • $160,784
  • $110,444

Prepare the entry to record Clay's contribution to the partnership on May 1. Use Smart Entry when the account is not available.

2. Dividing income - Service of partners

Davis Miles and Charles Sandberg are partners in an accounting firm. The partnership agreement provides Miles and Sandberg monthly salaries of $4,400 and $5,640, respectively. The agreement also states that 60% of any remaining income or loss should be distributed to Miles and 400/0 to Sandberg.

What is Sandberg's annual salary allowance?

  • $52,800
  • $199,520
  • $120,480
  • $67,680

During the year, the partnership had net income of $320,000. After each partner has received their annual salary allowance, what amount of the remaining net income will be distributed to Miles?

  • $199,520
  • $79,808
  • $119,712
  • $320,000

What is the total amount of net income distributed to Sandberg?

  • $320,000
  • $147,488
  • $172,512
  • $120,480

At the end of the year, Miles and Sandberg prepare a statement that details the division of net income. Complete the following statement for Miles and Sandberg.

3. Dividing income - Service of partners and investment

Mark Raymond and Neal Campbell have formed a partnership. To start the partnership, Raymond invested $33,000, and Campbell invested $99,000. The partnership agreement states that Raymond and Campbell are to receive monthly salary allowances of $3,700 and $6,400, respectively.

The partnership agreement also states that the division of net income is based on the partners' salary allowance, interest of 20% on their beginning investment, and the remainder on the ratio of their investments to the total invested.

If net income for the year is $498,000, what amount will be distributed to Raymond?

  • $350,400
  • $138,600
  • $147,600
  • $498,000

If net income for the year is $141,600, what amount will be distributed to Campbell?

  • $141,600
  • $49,500
  • $6,000
  • $92,100

4. Statement of partnership equity

Stephanie Evans and Stewart Tessio, partners in an accounting firm, are preparing their end-of-the-year statement of partnership equity.

The partnership agreement states that Evans and Tessio are each to receive a $7,440 monthly salary allowance, which they withdraw in cash each month. The agreement also states that the division of net income is based on the partners' salary allowance, interest of 20% on their beginning investment plus any capital invested during the year, and the remainder shared equally.

Evans's and Tessio's capital account balances at the beginning of the year were $251,880 and $212,500, respectively. On January 1, Evans contributed an additional $29,000 to the partnership. The partnership had net income of $292,000 for the year.

Complete the statement of partnership equity for Evans and Tessio, Accountants. Enter partner withdrawals as negative numbers.

Reference no: EM13845592

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