Accounting project need soon as possible

Project I

The trial balance of the Elker Fashions Incorporated contained the following accounts at

December 31, 2008 the end of the company’s calendar year.

Elker Fashions Incorporated

Trial Balance

December 31, 2008

Debit Credit

Cash $ 26,500

Accounts Receivable 42,200

Merchandise Inventory (Beginning) 52,500

Land 94,000

Buildings 183,000

Accumulated Depreciation-Buildings $ 56,400

Equipment 84,500

Accumulated Depreciation-Equipment 42,400

Notes Payable 40,000

Accounts Payable 37,500

Common Stock 205,500

Retained Earnings 67,800

Dividends 11,000

Sales 865,800

Sales Discounts 6,100

Purchases 720,000

Purchase Discounts 16,400

Freight-in 12,900

Salaries Expense 70,700

Utilities Expense 11,400

Repair Expense 5,900

Gas and Oil Expense 7,600

Insurance Expense 3,500

$ 1,331,800 $ 1,331,800

Adjustment data:

1. Depreciation is $12,000 on buildings and $10,000 on equipment. (Both are administrative

expenses.)

2. Interest of $9,000 is unpaid on notes payable at December 31.

Other data:

1. The beginning balance of accounts receivable is $26,750.

2. The amount of total assets at the beginning of the year is $378,231. 3. Merchandise inventory on hand at December 31, 2008 is $80,000.

4. Salaries are 70% selling and 30% administrative. 5. $12,000 of the notes payable are payable next year. 6. Gas and oil expense is a selling expense.

7. Utilities expense, repair expense, and insurance expense are 100% administrative.

Instructions

1) Journalize the adjusting entries. 2) Prepare a multiple-step income statement and a retained earnings statement for the year

and a classified balance sheet as of December 31, 2008.

3) Journalize the closing entries. 4) Prepare a post-closing trial balance. 5) Prepare the following ratios and show all support for your computations:

(No partial credit given without work/computations)

a) Current Ratio

b) Quick Ratio

c) Working Capital

d) Accounts Receivable Turnover

e) Average Collection Period

f) Inventory Turnover

g) Days in Inventory

h) Debt to Total Assets Ratio

i) Gross Profit Ratio

j) Profit Margin Ratio

k) Return on Assets Ratio

l) Asset Turnover Ratio

6) Based on the ratios computed in 5) above, answer the following questions and use the

financial statement ratios to support your answers where appropriate:

Do you feel that the company is able to meet its current and long term obligations as they

become due?

Comment on the profitability of the company with respect to the various profitability ratios

that you computed.

Would you lend money to this company for the long term?

Comment on the ability of the company to collect its receivables and mange inventory.

2005 2006 2007 Industry Average

Liquidity

Current 2.41 2.72 2.85 3.08

Quick 1.08 1.12 1.19 1.47

Working Capital $ 96,750.00 $ 99,850.00 $ 101.700.00 $ 109,000.00

Leverage

Debt to Total Assets (%) 19.84% 20.77% 21.45% 19.63%

Times Interest Earned 8.75 9.08 9.48 10.12

Activity

Inventory Turnover (sales) 8.21 9.91 10.15 10.52

Fixed Asset Turnover 3.24 3.62 3.73 3.81

Total Asset Turnover 2.15 2.22 2.30 2.56 Average Collection Period (days) 14.95 14.72 14.42 14.20

Accounts Receivable Turnover 24.08 24.50 24.88 25.17

Days in Inventory 42.91 34.59 34.31 41.75

Profitability

Gross Profit Margin (%) 21.10% 23.40% 24.03% 24.56%

Net Profit (%) 6.63% 7.25% 7.83% 8.03%

Return on Total Assets (%) 15.65% 16.14% 16.24% 16.09%

Return on Equity (%) 20.15% 21.89% 22.75% 22.56%

Payout Ratio (%) 16.32% 16.78% 17.09% 17.72%