Question

On January 1, 2024, the general ledger of Dynamite Fireworks includes the following account balances: During January 2024 , the following transactions occur: January 2 Purchase rental space for one year in advance, $7,200($600/month)January 9 Purchase additional supplies on account, $3,900. January 13 Provide services to customers on account, $25,900.January 17 Receive cash in advance from customers for services to be provided in the future, $4,100.January 20 Pay cash for salaries, $11,900. January 22 Receive cash on accounts receivable, $24,500.January 29 Pay cash on accounts payable, $4,400. ​January 2 Purchase rental space for one year in advance, $7,200 ($600/month). January 9 Purchase additional supplies on account, $3,900. January 13 Provide services to customers on account, $25,900. January 17 Receive cash in advance from customers for services to be provided in the future, $4,100. January 20 Pay cash for salaries, $11,900. January 22 Receive cash on accounts receivable, $24,500. January 29 Pay cash on accounts payable, $4,400. Required: 1. Record each of the transactions listed above. 2. Record the adjusting entries on January 31. - Rent for the month of January has expired. - Supplies remaining at the end of January total $3,200. All other supplies have been used. - By the end of January, $3,500 of services has been provided to customers who paid in advance on January 17. - Unpaid salaries at the end of January are $5,520. 3. Prepare an adjusted trial balance as of January 31,2024. 4. Prepare an income statement for the period ended January 31, 2024. 5. Prepare claassified balance sheet as of January 31, 2024. 6. Record closing entries. 7. Analyze the following features of Dynamite Fireworks' financial condition: a. What is the amount of profit reported for the month of January? b. Calculate the ratio of current assets to current liabilities (the current ratio) at the end of January. c. Based on Dynamite Fireworks' profit and ratio of current assets to current liabilities, indicate whether Dynamite Fireworks appe to be in good or bad financial condition.

Answer 1

The firm's accounting profit is calculated by subtracting its total explicit costs from its revenues. In this case, the firm's accounting profit is $115,000.

Step-by-step explanation:

Calculating a firm's accounting profit involves subtracting all explicit costs from its total revenues. In this scenario, the firm had sales revenue of $1 million and incurred various expenses such as $600,000 on labor, $150,000 on capital, and $200,000 on materials.

Step 1. Calculate the total explicit costs: Office rental ($50,000) + Law clerk's salary ($35,000) = Total explicit costs of $85,000.

Step 2. To determine the accounting profit, subtract the explicit costs from the revenues: Revenues ($200,000) - Explicit costs (-$85,000).

The firm's accounting profit would therefore be: $200,000 - $85,000 = $115,000.