30000 land 15000 prepaid insurance 2200 rent revenue

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30,000 Land 15,000 Prepaid Insurance 2,200 Rent Revenue 1,700 Retained Earnings (as at Jan. 1, 2006) 64,100 Salaries Expense 24,000 Salaries Payable 3,800 Sales 100,000 Supplies 400 Supplies Expense 800 Unearned Rent Revenue 100 Required: A) Prepare a multiple step income statement for 2006. Please use the table on the following page to complete this question. The income tax rate is 20%. Income tax is not included in the adjusted trial balance shown above. There are 10,000 common shares outstanding. 4
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Richmond Corporation Income Statement For the year ended December 31, 2006 Sales $100,000 Less: Cost of Goods Sold 52,000 __________________ __________________ Gross Margin $48,000 Operating Expenses __Advertising ______ $6,400 __Amortization _____ 1,000 __Insurance ________ 1,900 __Salaries _________ 24,000 __Supplies _________ 800 Total Operating Expenses 34,100 __________________ __________________ Income from Operations $13,900 Other Revenues and Expenses __Rent Revenue _____ 1,700 __________________ Income Before Income Taxes $15,600 Income Taxes 3,120 Net Income $12,480 Earnings per Share $1.25 / share B) Provide the adjusting entry required for the income taxes. You do need to include an explanation. Income Tax Expense $3,120 Income Tax Payable $3,120 5
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Question 3 (10 marks) Barnett Limited reported the following December 31 amounts in its financial statements (in millions): 2006 2005 2004 Sales revenue $225.0 $200.0 $180.0 Cost of goods sold 108.5 83.7 77.2 Gross profit 116.5 116.3 102.8 Net income 27.0 25.7 12.3 Current assets 16.8 14.6 9.8 Total assets 85.0 80.0 72.0 Current liabilities 12.9 9.2 10.1 Total shareholders' equity 55.0 49.0 46.0 Shares outstanding 8.0 7.5 7.0 Required: A) Compute the debt to equity ratio for 2006 ($85 – 55) = 0.5455 $55 B) Compute the net profit margin for 2006 $27 = 0.120 or 12% $225 C) Compute the return on equity ratio for 2006 $27 = $27 = 0.5192 or 51.92% ($55 + 49)/2 $52 D) Compute the return on assets ratio for 2006 $27 = $27 = 0.3273 or 32.73% ($85 + 80)/2 $82.5 E) Compute the total asset turnover ratio for 2006 $225 = $225 = 2.7273 ($85 + 80)/2 $82.5 6
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Question 4 (15 Marks) The following information relates to activities for Mescall Inc. for 2006. Selected account balances at December 31, 2005 and 2006 are shown in the following table. All account balances have the usual sign. 2005 2006 Cash $10,000 $20,000 Accounts receivable 14,000 12,000 Inventories 13,000 17,000 Prepaid expenses 1,500 3,000 Equipment 50,000 30,000 Accumulated amortization, equipment 25,000 20,000 Delivery truck 0 14,000 Land 90,000 90,000 Accounts payable 16,000 9,000 Interest payable 0 720 Notes payable 15,000 26,000 Bonds payable 50,000 50,000 Required: Prepare the statement of cash flows for Mescall Inc. for 2006 using the indirect method.
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