Financial Accounting Review


Sam’s Pizza -  Balance Sheet



            cash                                             8200

            Accts Receivable                          490

            inventory                                    1230           

            Equipment                                  9750

                        les deprec.                     - 2800           

Total                                                     16870



            wages due                                    890

            accounts payable                        6980


Owner’s Equity

            Paid in capital                           8000                       

            Retained earnings                  X



  1. In order for the balance sheet to balance, what must his retained earnings equal?


  1. At the end of the month he pays off all accounts payable.  What does the balance sheet look like then?


  1. The owner needs his retained earnings to pay some personal bills, so he takes all of it out.  What does the balance sheet look like then?



Sam’s Pizza – Income Statement


Revenues                                             9460


Cost of Goods sold

            Start inventory                          1240

            Purchases                                 3200

            Remaining inventory                 -1380

Total                                        X

Operating expenses

            Rent                                           800

            Advertising                                 450

            Wages                                      3800

            Utilities                                       480

Total                                        X


Operating Profit                                    X



Adjust the income statement in these ways:

  1. What are the totals for expense categories, and for operating profit?
  2. He doubles his advertising budget and finds it increases his sales by $1000.



Go back to the original balance sheet for Sam’s Pizza.


6.  What is his current liquidity ratio?

7.  What is his debt to equity ratio?


How profitable is this business?


  1. What is the return on equity for this business? (Use “Operating Profit” from the original income statement)


  1. Assume the initial investment (“paid in capital”) in this company was in the form of 80 shares of stock purchased at $100 each.  What are the earnings per share?