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 Booksâ€™ 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 Amount Account title Amount
Cash $4,000 Accounts payable $3,500
Depreciation 2,000 Merchandise inventory 15,000
Carlton, equity 34,500 Accounts receivable 6,000
Cost of goods sold 85,000 Net sales 120,000
Rent expense 15,000 Insurance payable 500
Wages payable 1,500 Equipment 15,000
Utilities 6,500 Wages 8,000
Miscellaneous expenses 1,500