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
Create the financial statements for December 31, 2011, depict them in vertical format, and compute the current and acid test ratios.
- Account title Amount
- Cash $ 4,000
- Depreciation 2,000
- Carlton, equity 34,500
- Cost of goods sold 85,000
- Rent expense 15,000
- Wages payable 1,500
- Utilities 6,500
- Miscellaneous expenses 1,500
- Account title Amount
- Accounts payable $ 3,500
- Merchandise inventory 15,000
- Accounts receivable 6,000
- Net sales 120,000
- Insurance payable 500
- Equipment 15,000
- Wages 8,000