Exercise 4-6
Use the following adjusted trial balance of Resource Trucking Company to prepare the (1) income statement, and (2) statement of owner’s equity, for the year ended December 31, 2009. The J. Resco, Capital account balance is $161,901 at December 31, 2008.
Debit Credit
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,800
Accounts receivable . . . . . . . . . . . . . . . . . . . 17,500
Office supplies . . . . . . . . . . . . . . . . . . . . . . 3,000
Trucks . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156,000
Accumulated depreciation—Trucks . . . . . . . . $ 32,136
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,000
Accounts payable . . . . . . . . . . . . . . . . . . . . . 9,800
Interest payable . . . . . . . . . . . . . . . . . . . . . . 4,000
Long-term notes payable . . . . . . . . . . . . . . . 53,000
K.Webb, Capital . . . . . . . . . . . . . . . . . . . . . 161,901
K.Webb, Withdrawals . . . . . . . . . . . . . . . . . 20,000
Trucking fees earned . . . . . . . . . . . . . . . . . . 121,000
Depreciation expense—Trucks . . . . . . . . . . . 20,727
Salaries expense . . . . . . . . . . . . . . . . . . . . . 56,749
Office supplies expense . . . . . . . . . . . . . . . . 6,655
Repairs expense—Trucks . . . . . . . . . . . . . . . 10,406
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $381,837 $381,837
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,800
Accounts receivable . . . . . . . . . . . . . . . . . . . 17,500
Office supplies . . . . . . . . . . . . . . . . . . . . . . 3,000
Trucks . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156,000
Accumulated depreciation—Trucks . . . . . . . . $ 32,136
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,000
Accounts payable . . . . . . . . . . . . . . . . . . . . . 9,800
Interest payable . . . . . . . . . . . . . . . . . . . . . . 4,000
Long-term notes payable . . . . . . . . . . . . . . . 53,000
K.Webb, Capital . . . . . . . . . . . . . . . . . . . . . 161,901
K.Webb, Withdrawals . . . . . . . . . . . . . . . . . 20,000
Trucking fees earned . . . . . . . . . . . . . . . . . . 121,000
Depreciation expense—Trucks . . . . . . . . . . . 20,727
Salaries expense . . . . . . . . . . . . . . . . . . . . . 56,749
Office supplies expense . . . . . . . . . . . . . . . . 6,655
Repairs expense—Trucks . . . . . . . . . . . . . . . 10,406
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $381,837 $381,837
1. Use the information in the adjusted balance reported above to compute the current ratio as of the balance sheet date (round the ratio to one decimal). Interpret the current ratio for the Resource Trucking Company. (Assume that the industry average for the current ratio is 1.5)
2. COMPARATIVE ANALYSIS
| Key Figures Best Buy RadioShack ($ thousands) Current Year Prior Year Current Year Prior Year |
| Current assets………….$9,081 $7,985 $1,600 $1,627 Current liabilities……… 6,301 6,056 984 986 |
Required
1. Compute the current ratio for both years for both companies.
2. Which company has the better ability to pay short-term obligations according to the current ratio?
3. Analyze and comment on each company’s current ratios for the past two years.
4. How do Best Buy’s and RadioShack’s current ratios compare to their industry average ratio of 1.6?
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