Jones Surf Shop is ready to expand their operations and wants to buy some equipment to perform repairs on damaged

make some decisions about how to record the purchases and calculate depreciation as necessary.

On April 1 Jeremy has placed an order for a surf board repair machine that will be housed in the backroom of the reta
machine and it cost $15,000. He expects that the machine will have a useful life of 5 years and that he should be able
$2500. Complete the journal entry for the purchase of the machine.

JOURNAL
Date Description Debit
April 1, 2024 Equipment $ 15,000
Cash
Purchase of Surf Board Repair Machine

After talking with Jeremy about the uses of the machine you have decided that straight line depreciation makes the m
annual depreciation for the machine will be under the straight line depreciation method.

Straight Line Deprecation Schedule

Book Value $ 15,000
Useful Life (in years) 5
Salvage (Residual) Value $ 2,500
Depreciable Base $ 12,500

Depreciation Amount per year $ 2,500

Depreciation Amount per Month $ 208.33

As of April 30, journalize the depreciation entry for April, the first month the asset is put into service.

JOURNAL
Date Description Debit
April 30, 2024 Depreciation Expense $ 208.33
Accumulated Depreciation
Depreciation Expense of surfboard machine
Sally's Surf Pros has reached out to Jeremy about setting up some prepaid repair work for her competitive surf clients
ten tune-ups to get a discounted rate. Jeremy agrees to a price of $200 per tune up for the bundle. On April 15 Sally p
tuneups.

Journalize the receipt of the prepaid revenue

JOURNAL
Date Description Debit
April 15, 2024 Cash $ 2,000
Unearned Revenue
Purchase of surf board repair machine

One of Sally's pros comes in on April 25 to use one of the prepaid tuneups. Record the journal for completing this wo

JOURNAL
Date Description Debit
April 25, 2024 Unearned Revenue $ 200
Service Revenue
Revenue to the service

With the increase in operations Jeremy has decided to take out some debt to help finance the growth. He has reached
have agreed to a bank loan in the amount of $100,000 on April 1. The terms of the loan include a repayment of princi
annual interest rate on the loan is 8%, recognized monthly.

Journalize the receipt of the cash from the loan

JOURNAL
Date Description Debit
April 1, 2024 Cash $ 100,000
Notes Payable
Receipt of cash from loan

Calculate the interest recognized monthly.

Principal (Amount Borrowed) $ 100,000

Interest Rate 8%
 Period of Time 1/12
Monthly Interest Rate $ 666.67

Create the journal to record the interest for the first month of interest

JOURNAL
Date Description Debit
April 30, 2024 Interest Expense $ 667
Interest Payable
First month of interest

Below are the end of period statements for Jones Surf Shop - Help Jeremy do some financial statement analysis on t

Jones Surf Shop

Multi-Step Income Statement
For Month Ended April 30
Service Sales $40,000
Retail Sales $25,000
Total Sales (Revenue) $65,000
Less:
Sales Discount $1,500
Net Revenue $63,500

Cost of Goods Sold $15,250

Gross Margin $48,250

Operating Expenses (Record Accounts Alphabetically)
Advertising Expense $1,500
Depreciation Expense $208
Rent Expense $1,500
Utilities Expense $1,300
Salaries Expense $10,575
Supplies Expense $100
Total Operating Expenses $15,183
Earnings before Interest and Taxes $33,067
Interest Expense $667
Income Tax Expense $2,500
Net Income $29,900

Jones Surf Shop

 Balance Sheet
As of End of Month 1, Year 1
Assets
Cash $153,350
Accounts Receivable $25,350
Inventory $12,975
Supplies $150
Prepaid Rent $1,500
Office Furniture $2,500
Equipment $15,000
Accumulated Depreciation -$208

Total Assets $210,617

Liabilities
Accounts Payable $27,325
Interest Payable $667
Salaries Payable $925
Unearned Revenue $1,800
Notes Payable (Principal due in 5 years) $100,000
Total Liabilities $27,325

Stockholder's Equity
Common Stock (10,000 shares of $5 par stock) $50,000
Ending Retained Earnings $29,900
Total Stockholder's Equity $79,900

Total Liabilities & Stockholder's Equity $107,225

*Beginning Accounts Receivable = $15,350

*Beginning Inventory = $9,750
*Beginning Total Assets = $169,500
*Beginning Stockholder's Equity = $65,300
*Current Market Price of Common Stock = $7.50

Calculate the following ratios for Jeremy to consider where Jones Surf Shop is at after a few months of operations

LIQUIDITY RATIOS
A Working Capital

Working Capital = Current Assets - Current Liabilities

Current Assets $ 193,325

Current Liabilities $ 30,717
Working Capital $ 162,608
B Current Ratio

Current Ratio = Current Assets / Current Liabilities

Current Assets $ 193,325

Current Liabilities $ 30,717
Current Ratio 6.29:1

C Quick Ratio

Quick Ratio = Cash + Short-Term Investments +

/ Current Liabilities

Cash $ 153,350
Short-Term Investments $ -
Accounts Receivable $ 25,350
Current Liabilities $ 30,717
Quick Ratio 5.82:1

D Accounts Receivable Turnover (A/R Turnover)

A/R Turnover = Net Credit Sales / Average Accounts Receivable

Average Accounts
Receivable = Beginning A/R + Ending A/R / 2

Beginning A/R $ 15,350 +

Ending A/R $ 25,350
Average A/R $ 20,350

Net Credit Sales $ 62,000 /

Average A/R $ 20,350
A/R Turnover 3.05 Times

E Inventory Turnover

Inventory Turnover = Cost of Goods Sold / Average Inventory

Average Inventory = Beginning Inventory / Ending Inventory

/2
 Beginning Inventory $ 9,750
Ending Inventory $ 12,975
Average Inventory $ 11,363

Cost of Goods Sold $ 15,250

Average Inventory $ 11,363
Inventory Turnover 1.34 Times

F Average Days to Sell Inventory

Days' Sales in Inventory = Ending Inventory / Cost of Goods Sold x

Ending Inventory $ 12,975

Cost of Goods Sold $ 15,250
/ 365

Days' Sales in Inventory 310.25 Days

SOLVENCY RATIOS
G Debt to Equity Ratio

Debt to Equity Ratio = Total Liabilities / Total Stockholder Equity

Total Liabilities $ 27,325

Total Stockholder Equity $ 79,900
Debt to Equity Ratio 0.34:1

H Times Interest Earned

Times Interest Earned = Earnings before Interest and Taxes / Interest Expense

Earnings before Interest and Taxes $ 33,067

Interest Expense $ 667
Times Interst Earned 49.58 Times

EFFICIENCY RATIO
I Profit Margin

Profit Margin = Net Income / Net Sales

Net Income $ 29,900

Net Sales $ 63,500
Profit Margin 0.47 or 47%
J Asset Turnover

Total Asset Turnover = Net Sales / Average Total Assets

Average Total Assets = Beginning Total Assets / Ending Total Assets

/2

Beginning Total Assets $ 169,500

Ending Total Assets $ 210,617
/2
Average Total Assets $ 190,059

Net Sales $ 63,500

Average Total Assets $ 190,059
Total Asset Turnover 0.33 Times

K Return on Investment

Return on Total Assets = Net Income / Average Total Assets

Net Income $ 29,900

Average Total Assets $ 190,059
0.16 or 16%

L Return on Equity

Return on Equity = Net Income / Average Stockholder Equity

Average Stockholder
Equity = Beginning Stockholder Equity / Ending Stockholder Equity
/2

Beginning Stockholder Equity $ 63,500

Ending Stockholder Equity $ 79,900
/2
Average Stockholder Equity = $ 71,700

Net Income $ 29,900

Average Stockholder Equity $ 71,700
Return on Equity 0.42 or 42%

EFFICIENCY RATIO
M Earnings Per Share
Current radius:

Calculation: Current Assets / Current Liabilities

Result: 6.29.1
Interpretation: TheShare
Earnings per current ratio
= indicates the short-term
Net Earnings liquidity
available for Common of the company and its ability
Stock / to cover its short-te
greater than 1 suggests that the company has more assets than liabilities,
Average number of outstanding common shares indicating good liquidity. Jones Surf Shop
6.29.1, suggesting a strong ability to meet its near-term obligations.

Profit Net Earnings available for Common Stock

margin: $ 29,900
Average number of outstanding common shares 6,667
Calculation: Netper
Earnings Income
Share/ Net Sales 4.4849977575011
Result: 29,900 / 63,500 = 0.47 or 47%
Interpretation: Profit margin represents the percentage of revenue that translates into profit. A higher profit margin
N
management. Price-Earnings
Jones Surf Shop has a commendable profit margin Ratio (PEeffective
of 47%, indicating Ratio) cost control and a heal

ReturnPrice-Earnings
on equity: Ratio = Market price per share / Earnings per share
Calculation: Net Profit / Average Shareholders' Equity
Result:Market
42% price per share $ 7.50
Interpretation: ROE measures
Earnings per share the profitability
4.4849977575011generated by each dollar of shareholders' equity. A higher ROE sugge
capital. Jones Surf Shop's
Price-Earnings Ratio ROE of 42%
$ indicates that
1.67 the company is effectively generating returns on shareholders' i
strong financial performance.

In summary, the current ratio demonstrates strong liquidity, the profit margin reflects efficient cost management, a
use of equity capital. These ratios together suggest that Jones Surf Shop is in a favorable financial position after a few
Now that you have calculated the financial ratios please choose three of them that seem significant and write up an
what
If youthose ratios
have any mean and
questions or how
needitfurther
might effect the company.
clarification on these ratios, please do not hesitate to contact us.

Sincerely,

ani moreno
Accounting department
ani.moreno056@gmail.com

9969-77860
to perform repairs on damaged equipment. Help Jeremy
necessary.

sed in the backroom of the retail shop. He paid cash for the
ears and that he should be able to sell it at the end for about

Credit

$ 15,000

line depreciation makes the most sense. Calculate what the

d.

put into service.

Credit

$ 208.33
for her competitive surf clients. She would like to prepay for
he bundle. On April 15 Sally pays cash for the $2000 prepaid

Credit

$ 2,000

journal for completing this work

Credit

$ 200

ce the growth. He has reached out to Valley Bank and they

n include a repayment of principal at the end of 5 years. The

Credit

$ 100,000
 Credit

$ 667

nancial statement analysis on these statements

a few months of operations
 Accounts Receivable

A/R Turnover)

r
entory

365

ed
al Assets

nt

ckholder Equity
d its ability to cover its short-term obligations. A ratio
ood liquidity. Jones Surf Shop has a healthy current ratio of

o profit. A higher profit margin indicates efficient cost

Ratio) cost control and a healthy bottom line.
ffective

er share

ers' equity. A higher ROE suggests efficient use of equity

ting returns on shareholders' investment, demonstrating

s efficient cost management, and the ROE signifies effective

ble financial position after a few months of operations.
em significant and write up an email to Jeremy interpreting
hesitate to contact us.