Chapter 4, Problem 4.2CP

1.

To determine

T-Account: T-Account is a form of ledger account in which the debit entries are shown at the left side of the account and credit entries are shown at the right side of the account.

Worksheet: A worksheet is a spreadsheet used while preparing a financial statement. It is a type of form having multiple columns and it is used in the adjustment process. The use of a worksheet is optional for any organization. A worksheet can neither be considered as a journal nor a part of the general ledger.

Adjusting Entries: Adjusting entries are passed at the end of the accounting period to maintain the accounts on accrual basis. These entries are passed in order to adjust the amounts of incomes and expenses in the accounting period in which they are actually earned and incurred respectively.

Adjusted Trial Balance: An adjusted trial balance refers to the final trial balance resulting after posting the adjusting entries at the end of the period.

Balance Sheet: A Balance Sheet is a statement showing the position of the assets, liabilities and the owner’s equity at the end of the financial year.

Income Statement: Income Statement is a financial statement that is prepared by all the companies by enumerating all the expenses and revenues to calculate the resulting difference of Net Profit or Net Loss.

Retained Earnings Statement: Retained Earnings Statement is the statement showing the balance of retained earnings left at the end of the period after including the net profit for the period and distributing the dividend to the shareholders.

Return on Assets (ROA): This financial ratio evaluates how efficiently the assets are used in earning net income.

Formula:

$\begin{array}{c}\text{Return on assets}=\frac{\text{Net}\text{income}}{\text{Average total assets}}\\ =\frac{\text{Net}\text{income}}{\left(\frac{\text{Beginning total assets+Ending total assets}}{2}\right)}\end{array}$

Debt Ratio: The financial ratio which gauges the percentage of assets financed by debt is referred to as debt ratio.

Formula:

$\text{Debt ratio = }\frac{\text{Total liabilities}}{\text{Total assets}}$

Current Ratio: Current ratio is used to determine the relationship between current assets and current liabilities. The ideal current ratio is 2:1

Formula:

$\text{Current ratio}=\frac{\text{Current assets}}{\text{Current}\text{liabilities}}$

To prepare: Journal entry for January transactions.

2. and 5.

To determine

To Post: The transactions and adjusting entry to the T-account.

3.

To determine

To prepare: An unadjusted trial balance as of January 31, 2019.

4.

To determine

To prepare: a worksheet as of January 31, 2019.

5.

To determine

To prepare: Adjusting entries.

6.

To determine

To prepare: An adjusted trail balance.

7.

To determine

To prepare: M Delivery Service’s income statement for the month ended January 31, 2019.

8.

To determine

To calculate: The return on assets as of January 31, 2019 for M Delivery Service.