E5-14 Preparing and Interpreting Financial Statements

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The December 31, 2008 and 2007 adjusted trial balances for Sportlife Gym Corporation are shown below.

	2008		2007
	Debit	Credit	Debit	Credit
Cash	31,500		30,000
Accounts receivable	2,500		2,000
Supplies	13,000		13,000
Prepaid rent	3,000		3,000
Equipment	350,000		350,000
Accumulated depreciation		20,000		10,000
Other long term assets	20,000		12,000
Accounts payable		5,000		6,000
Unearned revenue		72,000		80,000
Income taxes payable		13,000		14,000
Long term debt		10,000		200,000
Contributed capital		214,000		50,000
Retained earnings		50,000		19,400
Dividends declared	5,000		-
Membership revenue		399,000		398,000
Coaching revenue		11,000		10,000
Salaries and wages expense	321,000		319,400
Rent expense	12,000		12,000
Depreciation expense	10,000		10,000
Other operating expenses	6,150		7,700
Interest revenue		750		700
Interest expense	600		15,000
Income tax expense	20,000		14,000
	794,750	794,750	788,100	788,100

Required

1.       Prepare a comparative classified balance sheet and comparative multistep income statement for 2008 and 2007, and a statement of stockholders’ equity for 2008. The change in contributed capital was caused by the issuance of new stock in 2008

2.       Identify two balance sheet and two income statement accounts that changed significantly in 2008. What might be the cause of these changes?

3.       Calculate and interpret the debt-to-assets. Asset turnover, and net profit margin ratios in 2008 and 2007. Total assets were $400,000 on December 31, 2006.

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