Accounting - Jessica and David

Jessica and David are student interns at Balanced Books Bookkeeping. They have taken several business math and accounting classes and are now applying what they have learned to real-life situations. They enjoy their internship, but they are sometimes surprised by the assignments they are given. Luckily, they work together, so they share the assignments and learn from each other. Their most recent assignment is to take a listing of accounts provided by one of Balanced Books’ clients and turn them into a balance sheet and income statement. David suggests that their client might appreciate it if they also performed a vertical analysis of each statement. Jessica suggests that they should also compute the current ratio and the acid-test ratio.

1. Create the financial statements for December 31, 2011, depict them in vertical format, and compute the current and acid test ratios.

Account title  Amount  Account title  Amount

Cash  $4,000  Accounts payable  $3,500

Depreciation 2,000  Merchandise inventory  15,000

Carlton, equity  34,500  Accounts receivable  6,000

Cost of goods sold 85,000  Net sales  120,000

Rent expense 15,000  Insurance payable  500

Wages payable 1,500  Equipment  15,000

Utilities  6,500  Wages  8,000

Miscellaneous expenses 1,500