HHsoln4 - Chapter 4 Completing the Accounting Cycle...

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Chapter 4 Completing the Accounting Cycle 235 Chapter 4 Completing the Accounting Cycle Decision Guidelines – Excel Solution Depending on the years used for the analysis, the answers to the discussion questions may vary. The solution provided here is based on FY00, FY99, and FY98 results. The data were taken from the online annual reports found at www.targetcorp.com . 1. Target has a current ratio each year below the desirable range of 1.5-2.0. While the ratio for all years indicates that Target has enough current assets to cover its current liabilities, the margin is slim and, therefore, would be considered a riskier investment than a company with a higher current ratio. 2. Target has a debt ratio ranging from 0.66 to 0.69, indicating that it is financed about one third with equity and two thirds debt. As the textbook notes, Federated Department Stores’ bankruptcy was due largely to its high debt during recession, so for Target, a lower debt ratio is a positive sign. 3. The trend is negative for Target’s current ratio. The current ratio dropped from 1.22 in FY98 to 1.11 in FY00, a 9% change. Why? Current liabilities are growing faster than current assets. As for the debt ratio, it is holding steady in the .69 – .66 range. The drop from .69 to .66 occurred two years ago, which is favorable.
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236 7 Questions 1. The accounting cycle: 1. Start with the account balances in the ledger at the beginning of the period. 2. Analyze and journalize transactions as they occur. 3. Post journal entries to the ledger accounts. 4. Compute the unadjusted balance in each account at the end of the period. 5. Enter the adjusted trial balance on the work sheet and complete the work sheet (optional). 6. Using the adjusted trial balance or the full work sheet as a guide, a. Prepare the financial statements. b. Journalize and post the adjusting entries. c. Journalize and post the closing entries. (Only the balance sheet accounts—assets, liabilities, and owner’ s equity—have balances at this point.) 7. Prepare the postclosing, or afterclosing, trial balance. This trial balance becomes step 1 for the next period. 2. The work sheet helps move data from the trial balance to the period financial statements. It summarizes the effects of all the transactions of a particular accounting period and provides an orderly way to compute net income. It helps identify the accounts needing adjustments. 3. Entering the adjusting entries on the work sheet has no effect on the ledger accounts because the work sheet is neither a journal nor a ledger. The adjusting entries must be journalized and posted to update the accounts. 4. Revenue accounts, expense accounts, and the withdrawal account are closed. During the
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HHsoln4 - Chapter 4 Completing the Accounting Cycle...

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