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Chapter 11: Q29PGA (page 612)

The income statement for California Communications follows. Assume California Communications signed a 3-month, 9%, $3,000 note on June 1, 2018, and that this was the only note payable for the company.

Requirements

1. Fill in the missing information for California鈥檚 year ended July 31, 2018, income statement. Round to the nearest dollar.

2. Compute the times-interest-earned ratio for the company. Round to two decimals.

Short Answer

Expert verified

Net Income:$4,282

Times Interest Earned Ratio:79.85 times

Step by step solution

01

Completing Income Statement

InterestExpenses=Notespayable脳Rate脳No.ofMonths12=$3,000脳9100脳312=$67.5

02

Computation of ratio

TimesInterestEarnedRatio=operatigIncomeInterestExpense=$5,430$68=79.85times

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Most popular questions from this chapter

When do businesses record warranty expenses, and why?

How is the times-interest-earned ratio calculated, and what does it evaluate?

The following transactions of Philadelphia Pharmacies occurred during 2017 and 2018:

2017

Jan. 9 Purchased computer equipment at a cost of \(7,000, signing a six-month, 8% note payable for that amount.

29 Recorded the week鈥檚 sales of \)68,000, three-fourths on credit and one-fourth for cash. Sales amounts are subject to a 6% state sales tax. Ignore cost of goods sold.

Feb. 5 Sent the last week鈥檚 sales tax to the state.

Jul. 9 Paid the six-month, 8% note, plus interest, at maturity.

Aug. 31 Purchased merchandise inventory for \(3,000, signing a six-month, 10% note payable. The company uses the perpetual inventory system.

Dec. 31 Accrued warranty expense, which is estimated at 2% of sales of \)609,000.

31 Accrued interest on all outstanding notes payable.

2018

Feb. 28 Paid the six-month 10% note, plus interest, at maturity.

Journalize the transactions in Plymouth鈥檚 general journal. Explanations are not required.

Watson Publishing completed the following transactions during 2018: Oct. 1 Sold a six-month subscription (starting on November 1), collecting cash of $240, plus sales tax of 8%. Nov. 15 Remitted (paid) the sales tax to the state of Tennessee. Dec. 31 Made the necessary adjustment at year-end to record the amount of subscription revenue earned during the year. Journalize the transactions (explanations are not required). Round to the nearest dollar.

List the required employee payroll withholding deductions, and provide the tax rate for each.
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