Tony Garcia opened a small dryer repair shop, Garcia Repair Shop, on January 2, 2010. The shop also sells a limited number of dryer parts. In January 2011, Garcia realized he had never filed any tax reports for his business and therefore probably owes a considerable amount of taxes. Since he has limited experience in running a business, he has brought you all his business records, including a check book, cancelled checks, deposit slips, suppliers invoices, a notice of annual property taxes of $2,310 due to the city, and a promissory note to his father-in-law for $2,500. He wants you to determine what his business owes the government and other parties.
You analyze all his records and determine the following as of December 31, 2010:
Unpaid invoices for dryer parts- $9,000
Parts sales (excluding sales tax)- $44,270
Cost of parts sold- $31,125
Worker's salaries- $18,200
Repair Revenue- $60,300
Current Assets- $16,300
Dryer Parts inventory- $11,750
You learn that the company has deducted $476 from the two employees' salaries for federal income taxes owed to the government. The current Social Security tax is 6.2 percent on maximum earning of $102,000 for cash employee, and the current Medicare tax is 1.45 percent (no maximum earnings). The FUTA tax is 5.4 percent to the state ad .8 percent to the federal government on the first $7,000 earned by each employee, and each employee earned more than $7,000. Garcia has not filed a sales tax report to the state ( 5% of sales.)
1. Given these limited facts, determine Garcia Repair shop's current liabilities as of December 31, 2010.
2. What additional information would you want from Garcia to satisfy yourself that all current liabilities have been identified?
3. Evaluate Garcia's liquidity by calculating working capital, payables turnover, and days' payable. Comment on the results. Comment on the results. (Assuming average accounts payable were the same as year-end accounts payable.)