1 - 4a - more complex financial statements\nindustrial relations ltd. offers mediation services for…

1 - 4a - more complex financial statements\nindustrial relations ltd. offers mediation services for unionized companies. when there is a contract dispute between a union and company management, often the two sides require an outside consultant to assist in the negotiations - industrial relations ltd. fills this role. the following account balances relate to the companys june 30, 2029 year - end financial statements:\n|short - term notes payable|$10,000|dividends|$50,000|\n|accounts receivable|11,000|income tax expense|80,000|\n|accumulated depreciation - equipment|15,000|wages expense|405,000|\n|interest expense|40,000|common shares|1,000|\n|equipment|110,000|retained earnings (july 1, 2028)|374,000|\n|depreciation expense|30,000|buildings|900,000|\n|supplies|6,000|accounts payable|5,000|\n|accumulated depreciation - buildings|125,000|cash|53,000|\n|consulting revenue|810,000|mortgage payable|450,000|\n|travel expense|70,000|supplies expense|35,000|\n\nnotes:\n- there were no common shares issued or repurchased during the year.\n- the current portion of the mortgage payable was $20,000.\n\nrequired:\n a.) prepare an income statement for the year ended june 30, 2029.\n b.) prepare a statement of retained earnings for the year ended june 30, 2029.\n c.) prepare a balance sheet as at june 30, 2029.\n d.) based on your financial statements, compute:\n i. the current ratio\n ii. the debt ratio\n iii. the equity ratio\n\nmembers video walkthrough (ad free): https://youtu.be/nwxfopgcf7g

1 - 4a - more complex financial statements\nindustrial relations ltd. offers mediation services for unionized companies. when there is a contract dispute between a union and company management, often the two sides require an outside consultant to assist in the negotiations - industrial relations ltd. fills this role. the following account balances relate to the companys june 30, 2029 year - end financial statements:\n|short - term notes payable|$10,000|dividends|$50,000|\n|accounts receivable|11,000|income tax expense|80,000|\n|accumulated depreciation - equipment|15,000|wages expense|405,000|\n|interest expense|40,000|common shares|1,000|\n|equipment|110,000|retained earnings (july 1, 2028)|374,000|\n|depreciation expense|30,000|buildings|900,000|\n|supplies|6,000|accounts payable|5,000|\n|accumulated depreciation - buildings|125,000|cash|53,000|\n|consulting revenue|810,000|mortgage payable|450,000|\n|travel expense|70,000|supplies expense|35,000|\n\nnotes:\n- there were no common shares issued or repurchased during the year.\n- the current portion of the mortgage payable was $20,000.\n\nrequired:\n a.) prepare an income statement for the year ended june 30, 2029.\n b.) prepare a statement of retained earnings for the year ended june 30, 2029.\n c.) prepare a balance sheet as at june 30, 2029.\n d.) based on your financial statements, compute:\n i. the current ratio\n ii. the debt ratio\n iii. the equity ratio\n\nmembers video walkthrough (ad free): https://youtu.be/nwxfopgcf7g

Answer

Explanation:

Step1: Calculate net income for income statement

Net income = Consulting revenue - Interest expense - Depreciation expense - Travel expense - Wages expense - Income - tax expense Net income = $810,000 - 40,000 - 30,000 - 70,000 - 405,000 - 80,000=$185,000

Step2: Prepare statement of retained earnings

Ending retained earnings = Beginning retained earnings + Net income - Dividends Ending retained earnings = $374,000+185,000 - 50,000=$509,000

Step3: Classify assets and liabilities for balance - sheet

Current assets = Accounts receivable+Supplies + Cash=$11,000 + 6,000+53,000 = $70,000 Non - current assets = Equipment - Accumulated depreciation - equipment+Buildings - Accumulated depreciation - buildings Non - current assets = $110,000 - 15,000+900,000 - 125,000=$870,000 Total assets = Current assets+Non - current assets=$70,000 + 870,000=$940,000 Current liabilities = Short - term notes payable+Current portion of mortgage payable+Accounts payable Current liabilities = $10,000+20,000 + 5,000=$35,000 Non - current liabilities = Mortgage payable - Current portion of mortgage payable Non - current liabilities = $450,000 - 20,000=$430,000 Total liabilities = Current liabilities+Non - current liabilities=$35,000+430,000 = $465,000 Equity = Common shares+Ending retained earnings=$1,000 + 509,000=$510,000 Total liabilities and equity = $465,000+510,000=$940,000

Step4: Calculate financial ratios

i. Current ratio

Current ratio = Current assets/Current liabilities Current ratio = $\frac{70,000}{35,000}=2$

ii. Debt ratio

Debt ratio = Total liabilities/Total assets Debt ratio = $\frac{465,000}{940,000}\approx0.495$

iii. Equity ratio

Equity ratio = Equity/Total assets Equity ratio = $\frac{510,000}{940,000}\approx0.543$

Answer:

a.

Income Statement Amount ($)
Consulting revenue 810,000
Interest expense 40,000
Depreciation expense 30,000
Travel expense 70,000
Wages expense 405,000
Income - tax expense 80,000
Net income 185,000

b.

Statement of Retained Earnings Amount ($)
Beginning retained earnings 374,000
Net income 185,000
Dividends 50,000
Ending retained earnings 509,000

c.

Balance Sheet Amount ($)
Assets
Current assets 70,000
Non - current assets 870,000
Total assets 940,000
Liabilities and Equity
Current liabilities 35,000
Non - current liabilities 430,000
Total liabilities 465,000
Equity 510,000
Total liabilities and equity 940,000

d. i. Current ratio: 2 ii. Debt ratio: Approximately 0.495 iii. Equity ratio: Approximately 0.543