HomeworkAnswersProblem 10-26B Effect of an Installment Note on Financial Statements
Sep 17, 2025
Accounting
Required
Use the following information to prepare a multistep income statement and a classified balance sheet for Brown Company for Year 1. (Hint: Some of the items will not appear on either statement, and ending retained earnings must be calculated.)
| Operating expenses | $45,000 |
| Cash | $46,000 |
| Land | $75,000 |
| Interest receivable (short term) | $1,600 |
| Accumulated depreciation | $46,000 |
| Cash flow from investing activities | ($96,000) |
| Accounts payable | $35,000 |
| Allowance for doubtful accounts | $14,000 |
| Unearned revenue | $27,000 |
| Interest payable (short term) | $6,000 |
| Warranties payable (short term) | $4,500 |
| Sales revenue | $900,000 |
| Equipment | $96,000 |
| Uncollectible accounts expense | $25,000 |
| Notes payable (long term) | $140,000 |
| Interest expense | $16,000 |
| Salvage value of equipment | $10,000 |
| Accounts receivable | $88,000 |
| Dividends | $15,000 |
| Salaries payable | $48,000 |
| Warranty expense | $7,200 |
| Supplies | $4,500 |
| Beginning retained earnings | $41,100 |
| Prepaid rent | $18,000 |
| Interest revenue | $4,200 |
| Common stock | $90,000 |
| Gain on sale of equipment | $7,000 |
| Cost of goods sold | $575,000 |
| Inventory | $126,000 |
| Salaries expense | $102,000 |
| Notes receivable (short term) | $12,500 |
| Building | $110,000 |
Problem 9-26B: Using Ratios to Make Comparisons
The following accounting information exists for Collie and Spaniel companies:
| Collie | Spaniel | |
|---|---|---|
| Cash | $12,000 | $15,000 |
| Wages payable | $10,000 | $12,000 |
| Merchandise inventory | $20,000 | $55,000 |
| Building | $90,000 | $80,000 |
| Accounts receivable | $22,000 | $25,000 |
| Long-term notes payable | $80,000 | $100,000 |
| Land | $35,000 | $40,000 |
| Accounts payable | $25,000 | $35,000 |
| Sales revenue | $220,000 | $250,000 |
| Expenses | $190,000 | $230,000 |
Required
a. Identify the current assets and current liabilities, and calculate the current ratio for each company.
b. Assuming all assets and liabilities are listed here, calculate the debt-to-assets ratio for each company.
c. Determine which company has greater financial risk in both the short term and the long term.