21.

1 Contemporary Wood Furniture

Charles Royston was checking the year-end balances for his wood furniture manufacturing and retail
business and was concerned about the numbers. From what he remembered, his debts and accounts
receivable were higher than the previous year. Rather than get worked up over nothing, he
decided he would gather the information and make a comparison. For December 31, 2011, the business
had current assets of: $1,844 cash, $11,807 accounts receivable, and $9,628 inventory. Plant
and equipment totaled $158,700. Current liabilities were: accounts payable $13,446; wages payable
$650; and property and taxes payable $4,124. Long-term debt totaled $92,800 and owners equity
$70,959. By comparison, for December 31, 2010, the business had current assets of: $3,278 cash;
$6,954 accounts receivable; $17,417 inventory. Plant and equipment totaled $144,500. Current liabilities
were: accounts payable $9,250; wages payable $1,110; property and taxes payable $3,650.
Long-term debt totaled $75,800; and owners equity $82,339.
1. Construct a comparative balance sheet for Contemporary Wood Furniture for year-end 2010
and 2011, including a vertical and horizontal analysis of the comparative balance sheet.
Express percents to the nearest tenth of a percent.

Contemporary Wood Furniture

Balance Sheet
Column1

Column2

Assets
Current Assets
Cash
Accounts Recievable
Merchandise Inventory
Total Current Assets

Column3

Column4
Column43
DEC 31 2011
Amount

$1,844
$11,807
$9,628
$23,279

Plant and equipment

Total Plant and Equipment

$158,700

Liabilities
Current Liabilities
Accounts Payable
Wages Payable
Property & Taxes Payable
Total Current Liabilities

$13,446
$650
$4,124
$55,336

Long Term Liabilities

Total Long Term Liabilities
Total Liabilities

$92,800
$148,136

Owner's Equity

Column42
Vertical

Column5

Total Liabilities and owner's equity

$70,959

2. Calculate the current ratio and the total debt to total assets ratio for 2010 and 2011.

3. Overall, what does your analysis mean? Is Charles correct to be concerned about these numbers? Explain.

turing and retail

bts and accounts
2011, the business

wages payable
wners equity
$3,278 cash;
00. Current liabilities

orary Wood Furniture

Balance Sheet
Column6
Horiontal

Column7

Column8
Column83 Column82 Column9 Column10
DEC 31 2012
Amount
Vertical
Horizontal

$3,278
$6,954
$17,417
$27,649

$144,500

$9,250
$1,110
$3,650
$14,010

$75,800
$89,810

ers? Explain.

$82,339

21.2 Balanced Books Bookkeeping

Jessica and David are student interns at Balanced Books Bookkeeping. They have taken several
business math and accounting classes and are now applying what they have learned to real-life situations.
They enjoy their internship, but they are sometimes surprised by the assignments they are
given. Luckily, they work together, so they share the assignments and learn from each other. Their
most recent assignment is to take a listing of accounts provided by one of Balanced Books clients
and turn them into a balance sheet and income statement. David suggests that their client might appreciate
it if they also performed a vertical analysis of each statement. Jessica suggests that they
should also compute the current ratio and the acid-test ratio.

1. Create the financial statements for December 31, 2011, depict them in vertical format, and
compute the current and acid test ratios.
Account Title
Cash
Depriciation
Carlton Equity
COGS
Rent Expense
Wages Payable
Utilities
Misc Expense

Amount
$4,000
$2,000
$34,500
$85,000
$15,000
$1,500
$6,500
$1,500

Account Title
Accounts Payable
Merchandise Inventory
Accounts Recievable
Net Sales
Insurance Payable
Equipment
Wages

aken several
d to real-life situations.

ach other. Their

d Books clients
eir client might appreciate

se Inventory

Amount
$3,500
$15,000
$6,000
$120,000
$500
$15,000
$8,000