Transaction Analysis and Financial Statements

Use this worksheet to complete the following three exercises for Assessment 1. Refer to the instructions in the course for submitting your assessment.

Exercise 1-1

Key comparative figures ($ millions) for two companies, Alltech and SynergyXT, are presented in the following table.

For this exercise, perform a comparative analysis of these two companies that answers the following five questions:

What is the total amount of assets invested in each company?

Total assets = Liabilities + Equity

Alltech:

SynergyXT:

What is the return on assets for each company? Alltech’s beginning-year assets equal $8,101 (in millions) and SynergyXT’s beginning-year assets equal $36,171 (in millions).

Revenues – Expenses = Net income

Alltech:

SynergyXT:

How much are expenses for each company?

Revenues – Expenses = Net income

Alltech:

SynergyXT:

Is return on assets satisfactory for each company? Assume competitors average an 18 percent return.

[Write your answer here.]

What can you conclude about Alltech and SynergyXT from these computations?

[Write your answer here.]

Exercise 1-2

The accounting records of Newtown Distributors show the following assets and liabilities as of December 31, 2011, and 2012.

Late in December 2012, the business purchased a small office building and the land for $240,000. $135,000 cash was applied to the purchase with a $105,000 note payable for the balance. In exchange for stock, the owner of the company invested $40,000 cash to make the cash payment of $135,000. The business also pays $2,800 cash per month for dividends.

Use this information to complete the exercise beginning on page 4.

For this exercise, complete the following three tasks:

Prepare balance sheets for Newtown Distributors as of December 31, 2011, and 2012. Report only total equity, which equals the difference between assets and liabilities.

[Create the 2011 balance sheet here.]

[Create the 2012 balance sheet here.]

Compare the equity amounts and use the additional information provided in this problem to calculate the net income Newtown Distributors earned in 2012.

[Show the computation of 2012 net income here.]

Compute the 2012 year-end debt ratio for the business.

Debt Ratio =

Exercise 1-3

Use the following information and the table on page 8 to complete the exercise beginning on page 9.

Digital Learning, Inc. provides computer training to individuals and to off-site groups. Tuition is paid directly to the school. The school’s unadjusted trial balance for the year ending December 31, 2012, is shown in the table below. Digital Learning, Inc. initially records their prepaid expenses and unearned revenues in balance sheet accounts. Adjusting entries must be made on December 31 for each of the following items (1–8).

1. A review of the school’s insurance policies found that $2,800 of coverage has expired.

2. A 2012 year-end inventory shows available teaching supplies costing $2,450 remaining in stock.

3. The annual depreciation on the school’s equipment is $11,000.

4. The annual depreciation on the school’s professional library is $6,250.

5. At the request of a client, the school conducted a special six-month course, starting November 1. The school charged the client a monthly fee of $1,800. The first five months were paid in advance. Upon receipt of the cash payment, the school credited the Unearned Training Fees account. The school will record the sixth month’s fee upon collection in 2013.

6. The school conducted a four-month course for one student, starting October 15, for a monthly fee of $2,500, payable upon course completion. As of December 31, no payments have been received. Accruals are applied to the nearest half-month.

7. The school pays its three employees weekly. As of December 31, two days’ salaries have accrued for each employee at a daily rate of $125.

8. The Prepaid Rent account balance represents December’s rent.

For this exercise, complete the following four tasks:

Prepare T-accounts for Digital Learning, Inc. Use balances from the unadjusted trial balance.

Prepare the adjusting journal entries for items 1–8 and post them to the T-accounts.

Adjustment (1):

Adjustment (2):

Adjustment (3):

Adjustment (4):

Adjustment (5):

Adjustment (6):

Adjustment (7):

Adjustment (8):

Update the T-accounts balances for the adjusting entries, and prepare an adjusted trial balance.

[Create the adjusted trial balance here.]

Prepare Digital Learning’s income statement and statement of retained earnings for 2012. Prepare a balance sheet as of December 31, 2012.

[Create the income statement here.]

[Create the statement of retained earnings here.]

[Create the balance sheet here.]

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