On January 1, 2024, the general ledger of Freedom Fireworks includes the following account balances:
During January 2024, the following transactions occurred:
January 1 Borrowed $100,000 from Captive Credit Corporation. The installment note bears interest at 7% annually and
matures in 5 years. Payments of $1,980 are required at the end of each month for 60 months.
January 1 Called the bonds at the contractual call price of $100,000. The 6% bonds pay interest semiannually each June
30 and December 31.
January 4 Received $31,000 from customers on accounts receivable.
January 10 Paid cash on accounts payable, $11,000.
January 15 Paid cash for salaries, $28,900.
January 30 Firework sales for the month totalled $195,000. Sales included $65,000 for cash and $130,000 on account. The
cost of the units sold was $112,500.
January 31 Paid the first monthly installment of $1,980 related to the $100,000 borrowed on January 1 .
The following information is available on January 31, 2024.
Depreciation on the building for the month of January is calculated using the straight-line method. At the time the building was
purchased, the company estimated a service life of ten years and a residual value of $24,000.
At the end of January, $3,000 of accounts receivable are past due, and the company estimates that 50% of these accounts will
not be collected. Of the remaining accounts receivable, the company estimates that 2% will not be collected. No accounts were
written off as uncollectible in January.
Unpaid salaries at the end of January are $26,100.
Accrued income taxes at the end of January are $5,000.
Using the information from the requirements above, complete the 'Analysis'.
Note: Calculate the ratios to the nearest 1 decimal place.
Analyze the following for Freedom Fireworks:
(a) Calculate the debt to equity ratio. If the average debt to equity ratio for the industry is 1.0, is Freedom Fireworks more or less leveraged
than other companies in the same industry?
The debt to equity ratio is:
Is the company more or less leveraged than other companies?
(b) Calculate the times interest earned ratio. If the average times interest earned ratio for the industry is 20 times, is the company more or
less able to meet interest payments than other companies in the same industry?
The times interest earned ratio is:
Is the company more or less able to meet interest payments than other companies?
Based on the debt to equity ratio and the times interest earned ratio, ratio, Freedom Fireworks would more likely receive a
higher or lower interest rate than the average borrowing rate in the industry?
On January 1,2024,the general ledger of Freedom Fireworks includes the following account balances:
Accounts Cash Accounts receivable Inventory Land Buildings Allowance for uncollectible accounts Accumulated depreciation Accounts payable Bonds payable Discount on bonds payable Common stock Retained earnings Totals
Debit $101,200 34,000 152,000 67,300 120,000
Credit
$1,800 9,600 17,700 120,000
30,000
200,000 155,400 $504,500 $504,500
During January 2o24,the following transactions occurred:
January 1 Borrowed $10o,ooo from Captive Credit Corporation. The installment note bears interest at 7% annually and matures in 5 years. Payments of $1,980 are required at the end of each month for 60 months. January 1 Called the bonds at the contractual call price of $100,000. The 6% bonds pay interest semiannually each June 30 and December 31. January 4 Received $31,oo0 from customers on accounts receivable. January 10 Paid cash on accounts payable, $11,000. January 15 Paid cash for salaries, $28,900. January 30 Firework sales for the month totalled $195,000. Sales included $65,000 for cash and $130,000 on account.The cost of the units sold was $112,500. January 31 Paid the first monthly installment of $1,980 related to the $100,000 borrowed on January 1.
The following information is available on January 31,2024
1.Depreciation on the building for the month of January is calculated using the straight-line method. At the time the building was purchased, the company estimated a service life of ten years and a residual value of $24,000. 2.At the end of January,$3,000 of accounts receivable are past due,and the company estimates that 50% of these accounts will not be collected.Of the remaining accounts receivable,the company estimates that 2% will not be collected.No accounts were written off as uncollectible in January. 3.Unpaid salaries at the end of January are $26,100 4. Accrued income taxes at the end of January are $5,000
General Journal
General Ledger
Requirement
Trial Balance
Income Statement
Balance Sheet
Analysis
Using the information from the requirements above, complete the 'Analysis'. Note: Calculate the ratios to the nearest 1 decimal place
Dates:January 01
to:January 31
Analyze the following for Freedom Fireworks:
(a) Calculate the debt to equity ratio. If the average debt to equity ratio for the industry is 1.0, is Freedom Fireworks more or less leveraged than other companies in the same industry? The debt to equity ratio is: Is the company more or less leveraged than other companies? Less b) Calculate the times interest earned ratio. If the average times interest earned ratio for the industry is 20 times, is the company more or less able to meet interest payments than other companies in the same industry? The times interest earned ratio is: Is the company more or less able to meet interest payments than other companies? Less Based on the debt to equity ratio and the times interest earned ratio, ratio, Freedom Fireworks would more likely receive a higher higher or lower interest rate than the average borrowing rate in the industry?
Balance Sheet
Analysis
