Financial Accounting: Creative Company Analysis

This assignment involves a comprehensive analysis of Creative Company's financial performance using provided financial statements. Students are tasked with calculating key figures like insurance expense, prepaid insurance, net working capital, and supplies purchased. Additionally, they must interpret various financial ratios for 2015, such as days to collect average receivables, days in inventory, and the current and quick ratios, to assess the company's overall financial health.

Running head: MANAGERIAL ACCOUNTING
Managerial Accounting
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
Question I: Multiple Choice.......................................................................................................2
Question II:.................................................................................................................................3
Question III:...............................................................................................................................5
a. Calculating the amount of cash paid for insurance by Creative Company in 2016:..............5
b. Calculating the income statement for the year:......................................................................5
c. Calculating the amount of net working capital:.....................................................................5
d. Calculating the supplies purchased during the year:..............................................................6
Question IV:...............................................................................................................................6
Bibliography:..............................................................................................................................7

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Question I: Multiple Choice
1. Answer is option E (The cash basis of accounting is consistent with GAAP)
2. Answer is option A (Accrual Basis Accounting)
3. Answer is option D (Office supplies expenses for the year 250 – 50 = 200)
4. Answer is option B
Particulars Value
Supplies purchased Closing + Purchases - Opening
Supplies purchased 400 + 3100 - 600
Supplies purchased 2900
5. Answer is option A (1, 6, 7, 8, 9, 14)
6. Answer is option B (liability on the balance sheet)
7. Answer is option A (120,000 / 4 = 30,000)
8. Answer is option C (Current portion of long-term debt: $200,000, Long-term debt:
$800,000)
9. Answer is option C (Deposited amount = 20500-4000 - (20500*2%) - (20500*2%) =
14,565)
10. Answer is option D (Is known obligation of an uncertain amount)
11. Answer is option A (Warranties)

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12. Answer is option D (Should be disclosed if payment for damages is probable but the
amount cannot be reliably estimated)
13. Answer is option C ((35,000-2,000)/5 = 6,600)
14. Answer is option A ((10,000-1,000)/5 = 1,800)
15. Answer is option A (4 years)
16. Answer is option D (As the current value to retire the bond is 60,000)
17. Answer is option A (As only the actual sale value in inputted in cash flow statement,
which is 50,000)
18. Answer is option B (Decrease, Operating)
19. Answer is option D (As the current value to retire the bond is 60,000)
20. Answer is option A (Asset)
21. Answer is option A (Asset = Liability + Equity)
22. Answer is option B (Net income = Dividends + retained income = 400 – 200 = 200)
23. Answer is option A (400+600-300=700, which is same as shareholder equity thus making
the value of long term debt 0)
24. Answer is option A (profit margin = 43,000/380,500 = 11.3%, Total asset turnover =
380,500/220,000)
25. Answer is option A ((125,000*115)/500000 = 28.8)
Question II:
Account Title Classification Debit Credit

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Accounts payable CL 14,000
Accounts receivable CA 7,000
Accumulated depreciation, tools PPE 3,000
Accumulated depreciation, truck PPE 14,000
Depreciation expense, tools NA
Depreciation expense, truck NA
Cash CA 14,000
Copyright IA 3,400
Electrical fee earned NA
Electrical supplies CA 22,000
Insurance expense NA
Interest expense NA
Notes receivable, due November 20, 2017 CA 8,000
Jade Samson, capital OE 18,550
Jade Samson, withdrawals OE 21,000
Notes payable, due August 31, 2022 LTL 18,000
Notes payable, due June 1, 2016 CL 1,700
Prepaid insurance CA 700
Prepaid rent CA 4,800
Rent expense NA
Salaries expense NA
Salaries payable CL 2,100
Tools LTI 14,000

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Truck LTI 27,000
Unearned electrical fees CL 3,500
Totals 121,900 74,850
Question III:
a. Calculating the amount of cash paid for insurance by Creative Company in 2016:
Particulars Amount
Opening balance (A) 5000
Closing balance (B) 4250
Insurance expense (C) 4500
Actual cash paid in 2016 (D = B+C-A) 3750
b. Calculating the income statement for the year:
Particulars Amount
Opening balance (A) 650
Closing balance (B) 420
Prepaid insurance (C) 455
Actual cash paid in 2016 (D = A+C-B) 685
c. Calculating the amount of net working capital:
Particulars Amount

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Current liabilities 21,420
Total assets 208,300
Current assets 55,500
Net working capital 34,080
d. Calculating the supplies purchased during the year:
Particulars Amount
Opening balance (A) 235
Closing balance (B) 225
Prepaid insurance (C) 475
Actual cash paid in 2016 (D = B+C-A) 465
Question IV:
Particulars 2015
Days to collect average receivables 28
Days in inventory 88
Average number of days to pay an account 48
Current ratio 2.85
Quick ratio 1.52

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