Project Part 2: Using Accounting Information for Decision Making City Rides, a proprietorship engaged in the sale of mopeds to the public, completes its second year of operations on December 31, 20x3. Task 1: a. Adjusted trial balance amounts from the books of City Rides are listed below, for the two years ended December 31, 20x3: Account At Dec. 20x3 At Dec 20x2 DEBIT CREDIT DEBIT CREDIT Cash $21,030 $19,020 Accounts Receivable 18,500 12,000 Prepaid Rent 1,800 1,600 Allowance for Uncollectible Accounts $100 - Supplies 500 120 Inventory 21,250 15,720 Office Equipment 2,700 1,800 Truck 15,000 - Accumulated Depreciation—Office Equipment 900 360 Accumulated Depreciation—Truck 1,500 - Accounts Payable 4,150 5,850 Current portion of Long-Term Note Payable 5,000 - Long-Term Note Payable 20,000 - Capital—Harris 45,000 45,000 Withdraws—Harris 2,500 2,500 Sales Revenue 25,800 16,500 Sales Return and Allowances 800 Cost of Goods Sold 15,450 11,040 Wages Expense 3,600 1,800 Rent Expense 800 800 Depreciation Expense—Office Equipment 540 360 Depreciation Expense—Truck 1,500 - Utilities Expense 550 650 Supplies Expense 250 300 Uncollectible Accounts Expense 80 - $106,850 $106,850 $67,710 $67,710 Use the above adjusted trial balance amounts to complete the financial statements below by filling in the shaded cells: City Rides Income Statement For the Two Years Ended December, 20x3 20x3 20x2 Sales Revenue Net Sales Revenue Gross profit Less: operating expenses: Net Income City Rides Statement of Owner’s Equity For the Year Ended December, 20x3 20x3 20x2 Beginning Capital Ending Capital, Harris AC1220 ACCOUNTING I Project Part 2 Page 1 City Rides Balance Sheet At December 31, 20x3, 20x2 Assets Liabilities 20x3 20x2 20x3 20x2 Current Assets Current Liabilities $19,020 $5,850 12,000 - - Total Current Liabilities $9,150 $5,850 12,000 1,600 Long-Term Liabilities 120 - 15,720 Total Liabilities $29,150 $5,850 Total Current Assets $59,580 $48,460 Plant Assets Owner’s Equity 1,800 $45,000 (360) Total Owner’s Equity $45,730 $45,000 Total Plant Assets Total Assets $49,900 Total Liabilities and Equity $50,850 b. The Financial Statements of Extreme Scooter, a direct competitor of City Rides, are presented below. The two businesses have similar operations. Compare the financial statements of City Rides and Extreme Scooter and refer to these statements as you complete the tasks that follow Extreme Scooter Income Statement For the Two Years Ended December, 20x3 20x3 20x2 Net Sales Revenue 30,400 22,500 Less: Cost of Goods Sold (19,500) (14,400) Gross profit 10,900 8,100 Less: operating expenses: (7,700) (5,700) Net Income $3,200 $2,400 Extreme Scooter Statement of Owner’s Equity For the Year Ended December, 20x3 20x3 20x2 Beginning Capital $55,000 $ - Add: additional capi ...

1. Project Part 2: Using Accounting Information for Decision
Making
City Rides, a proprietorship engaged in the sale of mopeds to
the public, completes its second year of operations on December
31, 20x3.
Task 1:
a. Adjusted trial balance amounts from the books of City
Rides are listed below, for the two years ended December 31,
20x3:
Account
At Dec. 20x3
At Dec 20x2
DEBIT
CREDIT
DEBIT
CREDIT
Cash
$21,030
$19,020
Accounts Receivable
18,500
12,000
Prepaid Rent
1,800

2. 1,600
Allowance for Uncollectible Accounts
$100
-
Supplies
500
120
Inventory
21,250
15,720
Office Equipment
2,700
1,800
Truck
15,000
-
Accumulated Depreciation—Office Equipment
900
360
Accumulated Depreciation—Truck
1,500

3. -
Accounts Payable
4,150
5,850
Current portion of Long-Term Note Payable
5,000
-
Long-Term Note Payable
20,000
-
Capital—Harris
45,000
45,000
Withdraws—Harris
2,500
2,500
Sales Revenue
25,800
16,500
Sales Return and Allowances
800

4. Cost of Goods Sold
15,450
11,040
Wages Expense
3,600
1,800
Rent Expense
800
800
Depreciation Expense—Office Equipment
540
360
Depreciation Expense—Truck
1,500
-
Utilities Expense
550
650
Supplies Expense
250
300

5. Uncollectible Accounts Expense
80
-
$106,850
$106,850
$67,710
$67,710
Use the above adjusted trial balance amounts to complete the
financial statements below by filling in the shaded cells:
City Rides
Income Statement
For the Two Years Ended December, 20x3
20x3
20x2
Sales Revenue
Net Sales Revenue
Gross profit
Less: operating expenses:

6. Net Income
City Rides
Statement of Owner’s Equity
For the Year Ended December, 20x3
20x3
20x2
Beginning Capital

7. Ending Capital, Harris
AC1220 ACCOUNTING I
Project Part 2
Page 1
City Rides
Balance Sheet
At December 31, 20x3, 20x2
Assets
Liabilities
20x3
20x2
20x3
20x2
Current Assets
Current Liabilities

8. $19,020
$5,850
12,000
-
-
Total Current Liabilities
$9,150
$5,850
12,000
1,600
Long-Term Liabilities

9. 120
-
15,720
Total Liabilities
$29,150
$5,850
Total Current Assets
$59,580
$48,460
Plant Assets
Owner’s Equity
1,800
$45,000
(360)
Total Owner’s Equity
$45,730
$45,000

10. Total Plant Assets
Total Assets
$49,900
Total Liabilities and Equity
$50,850
b. The Financial Statements of Extreme Scooter, a direct
competitor of City Rides, are presented below. The two
businesses have similar operations. Compare the financial
statements of City Rides and Extreme Scooter and refer to these
statements as you complete the tasks that follow
Extreme Scooter
Income Statement
For the Two Years Ended December, 20x3
20x3
20x2
Net Sales Revenue

11. 30,400
22,500
Less: Cost of Goods Sold
(19,500)
(14,400)
Gross profit
10,900
8,100
Less: operating expenses:
(7,700)
(5,700)
Net Income
$3,200
$2,400
Extreme Scooter
Statement of Owner’s Equity
For the Year Ended December, 20x3
20x3
20x2
Beginning Capital
$55,000
$ -
Add: additional capital
-
57,600
Net Income (Loss)
3,200
2,400
Less: Drawing, Harris
(20,200)

12. (5,000)
Ending Capital, Harris
$38,000
$55,000
Extreme Scooter
Balance Sheet
At December 31, 20x3, 20x2
Assets
Liabilities
20x3
20x2
20x3
20x2
Current Assets
Current Liabilities
Cash
$4,550
$14,600
Accounts Payable
$22,800
$500
Accounts Receivable, Net
44,500
40,000
Wages Payable
1,200
2,500
Prepaid Expenses

13. 2,200
3,500
Total Current Liabilities
$24,000
$3,000
Supplies
450
400
Inventory
24,000
5,500
Total Current Assets
$75,700
$64,000
Long-Term Liabilities
Long-Term Note Payable
20,000
12,000
Total Liabilities
$44,000
$15,000
Plant Assets

14. Owner’s Equity
Office Equipment
7,400
6,500
Capital, Drew
$38,000
$55,000
Less: Accumulated Depreciation-Office Equipment
(1,100)
(500)
Total Owner’s Equity
$38,000
$55,000
Total Plant Assets
$6,300
$6,000
Total Assets
$82,000
$70,000
Total Liabilities and Equity
$82,000
$70,000
Task 2
a. Compare the trend in net sales for City Rides and Extreme
Scooter. Which business has the larger net sales in dollar
terms?

15. b. Compare the ending capital account balances of City Rides
and Extreme Scooter. Compute the dollar increase or decrease
in ending capital balance for each business. Suggest a reason for
the large change in ending capital of Extreme Scooter.
c. Compare inventory balances of City Rides and Extreme
Scooter. Which business tends to have more inventories on hand
at the end of any given year? Mention one advantage and one
disadvantage of keeping large amounts of inventory on hand.
d. Compare the accounts receivable balances of City Rides
and Extreme Scooter. Which business tends to sell more on
account? Mention one disadvantage associated with sales on
account.

16. Task 2
Compute the following accounting ratios for the year ended
December 31, 20x3, for City Rides and for Extreme Scooters (a
business that is comparable to City Rides). Refer to the
appendix below for the necessary formulae and page references.
Accounting Ratio
City Rides
Extreme Scooter
20x3
20x2
20x3
20x2
Current Ratio
Debt Ratio
Gross Profit Percentage
Day’s Sales in Receivables

17. Task 3
Imagine that you are an accountant who reports to the senior
commercial loan officer of a regional bank, Ms. Heather
Coldwell. Coldwell is deciding which of two loan applications
to approve and is having trouble doing so because the two
applicants have very similar business operations and both meet
the bank’s minimum lending standards. The first is an
application for a $25,000 bank loan to City Rides, and the
second is an application for a $25,000 bank loan to Extreme
Scooters. Your job is to compare and analyze the financial
health of City Rides and Extreme Scooter based on their
financial statements. You will summarize your findings and
final recommendation in a memorandum (“memo”) addressed to
Ms. Coldwell. Based on your memorandum, Ms. Caldwell will
approve one loan and deny the other.
Complete the memo on the following pages. Divide your memo
into the following sections:
Introduction
Briefly outline the purpose of the memo, mentioning the names
of the businesses analyzed.
Accounting Ratios
Explain each of the ratios computed in Task 2 above, and
indicate whether the ratio is:
· Favorable or unfavorable for each business
· Showing an improving or deteriorating trend over time
Financial Statements

18. Summarize the answers you provided to the questions in Task 1
here.
Recommendation
Recommend which business you believe should receive the bank
loan. Justify your recommendation by referring back to at least
one key issue raised in the body of the memo.
The memo should not exceed 2 pages. Use 11 point Arial font,
double-spaced. Spelling and grammar counts!
TO: Ms. H. Caldwell, Senior Loan Officer
FROM: _____________________, Staff Accountant
DATE: January 5, 20x4
SUBJECT: Financial Statement Analysis and Loan
Recommendation
Appendix: Accounting Ratios
Current Ratio (pp.214)
Debt Ratio (pp.214)
Gross Profit Percentage (pp.274)
Day’s Sales in Receivables (pp. 424)