PE 1-8B Ratio of liabilities to stockholders’ equity

The following data were taken from Alvarado Company’s balance sheet:

                                         dec. 31, 2016 | dec. 31, 2015

Total liabilities                       $4,085,000 | $2,880,000

Total stockholders’ equity.      4,300,000 | 3,600,000

a. Compute the ratio of liabilities to stockholders’ equity.

b. Has the creditor’s risk increased or decreased from December 31, 2015, to December 31, 2016?

Answer:

a. Dec. 31, Dec. 31, 

2016 2015 

  

Total    liabilities……………………………………………… $4,085,000 $2,880,000 

Total stockholders’ equity………………………………… $4,300,000 $3,600,000 

Ratio of liabilities to stockholders’ equity…………… 0.95* 

* $4,085,000 ÷ $4,300,000 

** $2,880,000 ÷ $3,600,000 

b. Increased 

PE 1-8A Ratio of liabilities to stockholders’ equity

The following data were taken from Mesa Company’s balance sheet:

                                          dec. 31, 2016 | dec. 31, 2015

Total liabilities                          $547,800 | $518,000

Total stockholders’ equity          415,000 | 370,000

a. Compute the ratio of liabilities to stockholders’ equity.

b. Has the creditor’s risk increased or decreased from December 31, 2015, to December 31, 2016?

Answer:

a. Dec. 31, Dec. 31, 

2016 2015 

  

Total    liabilities……………………………………………… $547,800 $518,000 

Total stockholders’ equity………………………………… $415,000 $370,000 

Ratio of liabilities to stockholders’ equity…………… 1.32* 

* $547,800 ÷ $415,000 

** $518,000 ÷ $370,000 

b. Decreased 

PE 1-7B Statement of cash flows

A summary of cash flows for Sentinel Travel Service for the year ended August 31, 2016, follows:

Cash receipts:

Cash received from customers $734,000

Cash received from issuing common stock 36,000

Cash payments:

Cash paid for operating expenses 745,600

Cash paid for land 50,000

Cash paid as dividends 18,000

The cash balance as of September 1, 2015, was $89,000.

Prepare a statement of cash flows for Sentinel Travel Service for the year ended August 31, 2016.

Answer:

SENTINEL TRAVEL SERVICE 

Statement of Cash Flows 

For the Year Ended August 31, 2016 

Cash flows from operating activities: 

Cash received from customers $ 734,000 

Deduct cash payments for operating expenses (745,600) 

Net cash flows used for operating activities $(11,600) 

Cash flows used for investing activities: 

Cash payments for purchase of land (50,000) 

Cash flows from financing activities: 

Cash received from issuing common stock $   36,000 

Deduct cash dividends (18,000) 

Net cash flows from financing activities 18,000 

Net decrease in cash during year $(43,600) 

Cash as of September 1, 2015 89,000 

Cash as of August 31, 2016 $ 45,400 

PE 1-7A Statement of cash flows

A summary of cash flows for Ousel Travel Service for the year ended November 30, 2016, follows:

Cash receipts:

Cash received from customers $1,465,000

Cash received from issuing common stock 50,000

Cash payments:

Cash paid for operating expenses 1,230,000

Cash paid for land 150,000

Cash paid as dividends30,000

The cash balance as of December 1, 2015, was $203,000.

Prepare a statement of cash flows for Ousel Travel Service for the year ended 

November 30, 2016.

Answer:

OUSEL TRAVEL SERVICE 

Statement of Cash Flows 

For the Year Ended November 30, 2016 

Cash flows from operating activities: 

Cash received from customers $ 1,465,000 

Deduct cash payments for operating expenses (1,230,000) 

Net cash flows from operating activities $ 235,000 

Cash flows used for investing activities: 

Cash payments for purchase of land (150,000) 

Cash flows from financing activities: 

Cash received from issuing common stock $ 50,000 

Deduct cash dividends (30,000) 

Net cash flows from financing activities 20,000 

Net increase in cash during year $ 105,000 

Cash as of December 1, 2015 203,000 

Cash as of November 30, 2016 $ 308,000 

PE 1-6B Balance sheet

Using the following data for Sentinel Travel Service as well as the retained earnings statement shown in Practice Exercise 1-5B, prepare a balance sheet as of August 31, 2016: 

Accounts payable $ 44,600

Accounts receivable 75,500

Cash 45,400

Land 310,000

Supplies 4,700

Answer:

SENTINEL TRAVEL SERVICE 

Balance Sheet 

August 31, 2016 

Assets Liabilities 

Cash $ 45,400 Accounts payable $ 44,600 

Accounts receivable 75,500 

Supplies 4,700 Stockholders’ Equity 

Land 310,000 Common stock $116,000 

Retained earnings 275,000 

Total stockholders’ 

equity 391,000 

Total liabilities and 

Total assets $435,600 stockholders’ equity $435,600

PE 1-6A Balance sheet

Using the following data for Ousel Travel Service as well as the retained earnings statement shown in Practice Exercise 1-5A, prepare a balance sheet as of November 30, 2016: 

Accounts payable $ 62,500

Accounts receivable 186,000

Cash 308,000

Land 480,000

Supplies 16,500

Answer:

OUSEL TRAVEL SERVICE 

Balance Sheet 

November 30, 2016 

Assets Liabilities 

Cash $308,000 Accounts payable $ 62,500 

Accounts receivable 186,000 

Supplies 16,500 Stockholders’ Equity 

Land 480,000 Common stock $150,000 

Retained earnings 778,000 

Total stockholders’ 

equity 928,000 

Total liabilities and 

Total assets $990,500 stockholders’ equity $990,500 

PE 1-5B Retained earnings statement

Using the income statement for Sentinel Travel Service shown in Practice Exercise 1-4B, prepare a retained earnings statement for the year ended August 31, 2016. Barb Schroeder invested an additional $36,000 in the business in exchange for common stock, and $18,000 of dividends were paid during the year. Retained earnings as of September  1, 2015, were $300,000. 

Answer:

SENTINEL TRAVEL SERVICE 

Retained Earnings Statement 

For the Year Ended August 31, 2016 

Retained earnings, September 1, 2015 $250,000 

Net loss for the year $ 7,000 

Plus dividends 18,000 

Decrease in retained earnings 25,000 

Retained earnings, August 31, 2016 $275,000