Question 1:
The assets and liabilities of Y Service Inc. as of December 31, 2008, and revenue and expenses for the year ended December 31, 2008 are listed below: Senden
Accounts Payable
$21,000
Property tax expense
$5,000
Accounts Receivable
25,000
Rent expense
3,000
Advertising expense
10,000
Salary expense
85,000
Building
140,000
Salary payable
12,000
Cash
10,000
Service Revenue
200,000
Furniture
20,000
Share Capital
75,000
Interest expense
4,000
Supplies
3,000
Land
98,000
Note Payable
95,000
Beginning Retained Earnings were $50,000 and dividends totalled $50,000 for the year.
Required:
a. Prepare the Income Statement for the year ended December 31, 2008
b. Prepare the Statement of Retained Earnings for the year
c. Prepare the Balance Sheet at December 31, 2008
d. Based on the financial statements prepared, answer the following questions:
1. Was Y Service Inc. profitable during 2008? If so by how much?
2. Did Retained Earnings increase or decrease? What is the amount of the change?
3. Which is the greater total, liabilities or total equity? Who owns more of the company's assets, the creditors or the shareholders?
Question 2
a. If you could pick a single source of cash for your business, what would it be? Why?
b. How can a business earn large profits but have a small balance in Retained Earnings?
c. How can a business lose money for many years and still have plenty cash?
d. Give two reasons why a business can be profitable for many years and still have a cash shortage?
e. Suppose your business has $80,000 worth of liabilities that must be paid within the next three months. Your liquid (can be turned into cash quickly) assets total only $60,000, your sales and collections from customers are slow. Identify two ways to finance the remaining $20,000 you will need, so you can pay all of the liabilities when they are due.