The accounting records of Fabiano Distribution show the following assets and liabilities as of December 31, 2010 and 2011.
| December 31 | 2010 | 2011 | ||
| Cash | $ | 44,557 | $ | 6,968 |
| Accounts receivable | 24,186 | 18,962 | ||
| Office supplies | 3,815 | 2,794 | ||
| Office equipment | 117,114 | 124,749 | ||
| Trucks | 45,828 | 54,828 | ||
| Building | 0 | 152,772 | ||
| Land | 0 | 38,123 | ||
| Accounts payable | 63,585 | 31,536 | ||
| Note payable | 0 | 90,895 | ||
| | ||||
Late
in December 2011, the business purchased a small office building and
land for $190,895. It paid $100,000 cash toward the purchase and an
$90,895 note payable was signed for the balance. Mr. Fabiano had to
invest $37,000 cash in the business in exchange for stock to enable it
to pay the $100,000 cash. The business also pays $2,600 cash per month
for dividends.
| Required: | |
| 1. |
Prepare balance sheets for the business as of December 31, 2010 and 2011.
|
| 2. |
By
comparing equity amounts from the balance sheets and using the
additional information presented in this problem, prepare a calculation
to show how much net income was earned by the business during 2011.
|
Explanation:
| Add dividends ($2,600 × 12) = $31,200 |
| FABIANO DISTRIBUTION Balance Sheet December 31, 2010 | |||
| Assets | |||
| Cash | $ | 44,557 | |
| Accounts receivable | 24,186 | ||
| Office supplies | 3,815 | ||
| Trucks | 45,828 | ||
| Office equipment | 117,114 | ||
| | | ||
| Total Assets | $ | 235,500 | |
| | | ||
| Liabilities | |||
| Accounts payable | $ | 63,585 | |
| Equity | |||
| Total equity | 171,915 | ||
| | | ||
| Total Liabilities & Equity | $ | 235,500 | |
| | | ||
| | |||
| FABIANO DISTRIBUTION Balance Sheet At December 31, 2011 | |||
| Assets | |||
| Cash | $ | 6,968 | |
| Accounts receivable | 18,962 | ||
| Office supplies | 2,794 | ||
| Trucks | 54,828 | ||
| Office equipment | 124,749 | ||
| Building | 152,772 | ||
| Land | 38,123 | ||
| | | ||
| Total Assets | $ | 399,196 | |
| | | ||
| Liabilities | |||
| Accounts payable | $ | 31,536 | |
| Note payable | 90,895 | ||
| | | ||
| Total Liabilities | $ | 122,431 | |
| Equity | |||
| Total equity | 276,765 | ||
| | | ||
| Total Liabilities and Equity | $ | 399,196 | |
| | | ||
3.
Compute the 2011 year-end debt ratio for the business.
Explanation: 
