a. Income Statement: Net Income $10,000
b. Statement of Financial Position (Balance Sheet):
- Total Assets $90,000
- Total Liabilities and Equity $75,000
c. Profitability Ratios:
- Gross Profit Margin = 0.5625 or 56.25%
- Net Profit Margin = 0.125 or 12.5%
d. Liquidity Ratios:
- Current Ratio = 5
- Quick Ratio = 5
e. Solvency Ratios: Debt to Equity Ratio = 0.5 or 50%
Based on the given information, we can prepare the following financial statements for ABC Sole Proprietorship for the year ended December 31, 2022:
a. Income Statement:
Sales Revenue $80,000
Cost of Goods Sold $35,000
Gross Profit $45,000
Rent Expense $8,000
Salaries Expense $20,000
Utilities Expense $2,000
Depreciation Expense $5,000
Net Income $10,000
b. Statement of Financial Position (Balance Sheet):
Assets Liabilities and Equity
Cash $15,000 Accounts Payable $10,000
Accounts Receivable $10,000 Long-term Liabilities $15,000
Inventory $25,000 Capital (Owner's Equity) $50,000
Prepaid Rent $5,000
Equipment $40,000
Less: Accumulated Depreciation ($5,000)
Total Assets $90,000 Total Liabilities and Equity $75,000
c. Profitability Ratios:
Gross Profit Margin = Gross Profit / Sales Revenue = $45,000 / $80,000 = 0.5625 or 56.25%
Net Profit Margin = Net Income / Sales Revenue = $10,000 / $80,000 = 0.125 or 12.5%
d. Liquidity Ratios:
Current Ratio = Current Assets / Current Liabilities = ($15,000 + $10,000 + $25,000 + $5,000) / $10,000 = 5
Quick Ratio = (Cash + Accounts Receivable + Inventory) / Current Liabilities = ($15,000 + $10,000 + $25,000) / $10,000 = 5
e. Solvency Ratios:
Debt to Equity Ratio = Total Liabilities / Total Equity = ($10,000 + $15,000) / $50,000 = 0.5 or 50%
Therefore, based on the given information, we can prepare the income statement and balance sheet for ABC Sole Proprietorship for the year ended December 31, 2022, and calculate the profitability, liquidity, and solvency ratios.