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Case Study 1
V3

Covers Chapters 1, 2, 3 and 4

Attached you will find the financial statements for Power Electrical Inc. (“PEI”) Please answer the following:

1. Show the effects on the accounting equation on the following. Please treat these transactions separately from the financial statement information provided. (12 marks) a. PEI paid the part time administrative assistant’s salary of $450.

Debit Salaries expense 450 O/E down Asset Down
Credit Cash 450
b. PEI paid the rent for the month of $600
2. Debit Rent Epense 600
3. Credit Cash 600
c. The company performed electrical work for a client and billed the client $1,000. d. Debit Accounts Recievable 1000
e. Credit Electric fee earned 1000
f. PEI bought supplies on credit for $200.
g. Debit Supplies 200
h. Credit Account Payable 200
i. The company collected $350 of the amount owed by the client described in (c). j. Debit Cash 350
k. Credit Account receieble 350
l.
m. PEI’s shareholders invested $2,000 in the company. n. Cash 2000
o. Owners Equity 2000

4. Show which accounts would be reported in the Current Assets section of the Balance Sheet. What is the Total Assets amount? (5 marks)
Cash, Accounts receieble , supplies, Bank line of credit. 176400 5. Calculate the company’s asset turnover ratio for both years. (2 marks) 9200/ 165700 = 0.05
6. Calculate the company's return on assets for both years. (2 marks)

7. Calculate the company's return on investment or return on equity for both years. (2 marks)

8. Calculate the company's operating profit as a percentage of sales for both years. (2 marks)

9. Calculate the company's earnings per share for both years. (2 marks)

10. Explain to management what you see in comparing the ratios.  Should management be concerned?  Are the ratios relevant and reliable? (6 marks)

11. What...
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