INTRO TO FIN ACCT (LL W/ ACCESS-1 SMSTR
INTRO TO FIN ACCT (LL W/ ACCESS-1 SMSTR
10th Edition
ISBN: 9781264038947
Author: Libby
Publisher: MCG
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Chapter 2, Problem 1CON

1.

To determine

Prepare the journal entries for the given events.

1.

Expert Solution
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Explanation of Solution

Journal: Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system.

Journal entries of Company P are as follows:

Issuance of common stock:

DateAccounts title and explanationDebit ($)Credit ($)
 Cash 25,000 
 Equipment 36,000 
 Common stock (1) 200
 Additional paid-in capital  (2) 60,800
 (To record the issuance of common stock)  

Table (1)

Working note:

(1) Calculate the value of common stock

Common stock =( Number of share×Par value per share)=4,000 shares×$0.05=$200

(2) Calculate the value of additional paid in capital

Additional paid-in capital = (Total cash receivedCommon stock value (1))=($61,000$200)=$60,800

Purchase of building and land on notes and in cash:

DateAccounts title and explanationDebit ($)Credit ($)
 Land 18,000 
 Building 72,000 
 Cash  10,000
 Mortgage notes payable  80,000
 (To record purchase of land and building on note and in cash)  

Table (2)

Purchase of equipment on notes and cash:

DateAccounts title and explanationDebit ($)Credit ($)
 Equipment 6,500 
 Cash  2,500
 Short-term notes payable  4,000
 (To record purchase of equipment on account and in cash)  

Table (3)

Hiring of new employee:

In this case, journal entry is not required, because it is not a business transaction.

Cash paid to bank:

DateAccounts title and explanationDebit ($)Credit ($)
 Mortgage notes payable 1,000 
     Cash  1,000
 (To record cash paid to creditors)  

Table (4)

Purchase of short-term investment:

DateAccounts title and explanationDebit ($)Credit ($)
 Short-term investments 5,000 
 Cash  5,000
 (To record purchase of short-term investment)  

Table (6)

Ordered inventory from Company PC:

In this case, journal entry is not required, because it is not a business transaction.

2.

To determine

Prepare T-account for the given transaction.

2.

Expert Solution
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Explanation of Solution

T-account: T-account refers to an individual account, where the increases or decreases in the value of specific asset, liability, stockholder’s equity, revenue, and expenditure items are recorded.

T-accounts of company P are as follows:

Cash
Beg.0
(a)25,00010,000(b)
 2,500(c)
 1,000(e)
 5,000(f)
6,500 
Short-term Investments
Beg.0
(f)5,000 
5,000
Equipment
Beg.0
(a)36,000
(c)6,500 
Land
Beg.0
(b)18,000
18,000 
Buildings
Beg.0
(b)72,000 
72,000
Short-term Notes Payable
 0Beg.
 4,000(c)
 4,000
Mortgage Notes Payable
 0Beg.
(e)1,00080,000(b)
 79,000
Common Stock
 0Beg.
 200(a)
 200
Additional Paid-in Capital
 0Beg.
 60,800(a)
 60,800

3.

To determine

Prepare the trial balance of Company P on March, 31.

3.

Expert Solution
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Explanation of Solution

Trial balance:

Trial balance is the summary of accounts, and their debit and credit balances at a given time. It is usually prepared at end of the accounting period.  Debit balances are listed in left column and credit balances are listed in right column.  The totals of debit and credit column should be equal.  Trial balance is useful in the preparation of the financial statements.

Trial balance of Company P is as follows:

Company P
Trial Balance
March, 31
ParticularsDebit ($)Credit ($)
Cash$6,500  
Short-term investments5,000 
Equipment42,500 
Land18,000 
Buildings72,000 
Short-term notes payable $4,000
Mortgage notes payable 79,000
Common stock 200
Additional paid-in capital 60,800
    Totals$144,000$144,000

Table (7)

Therefore, the total of debit, and credit columns of trial balance is $144,000 and agree.

4.

To determine

Prepare the classified balance sheet of Company P.

4.

Expert Solution
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Explanation of Solution

Classified balance sheet:

This is the financial statement of a company which shows the grouping of similar assets and liabilities under subheadings.

Classified balance sheet of Company P on January, 31 is as follows:

Company P
Balance Sheet
On March 31
Assets$$
Current Assets:  
    Cash6,500
    Short-term investments5,000
        Total current assets11,500
Equipment42,500
Land18,000
Buildings72,000
Total assets144,000
Liabilities and Stockholder’s Equity
Current Liabilities:
    Short-term notes payable4,000
        Total current liabilities4,000
Mortgage notes payable79,000
Total liabilities83,000
Stockholder’s Equity:
    Common stock ($0.05 par value)200
    Additional paid-in capital60,800
        Total stockholder’s equity61,000
Total liabilities and stockholder’s equity144,000

Table (8)

Therefore, the total assets of Company P are $144,000, and the total liabilities and stockholders’ equity is $144,000.

5.

To determine

Indicate whether each of given item is an investing (I) or financing (F), also indicate effect on the cash flow (+ for increase, – for decrease and NE for no effect).

5.

Expert Solution
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Explanation of Solution

Statement of cash flows:

Statement of cash flow is a financial statement that shows the cash and cash equivalents of a company for a particular period of time. It shows the net changes in cash, by reporting the sources and uses of cash as a result of operating, investing, and financing activities of a company.

TransactionType of Activity

Effect

on Cash

(a) Issuance of common stockFinancing activityIncreased by $25,000
(b) Purchase of land and buildingsInvesting activityDecreased by $3,400
(c) Purchase of new equipment and office furnitureInvesting activityDecreased by $2,500
(d) Hiring of new employeeNo effectNo effect
(e) Cash paid to bank on notes playableFinancing activityDecreased by $1,000
(f) Purchase of short-term investmentInvesting activityDecreased by $5,000
(g) Ordered inventory from Company PNo effectNo effect

Table (9)

6.

To determine

Calculate the current ratio of Company P and evaluate the ratio.

6.

Expert Solution
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Explanation of Solution

Current Ratio:

A part of liquidity ratios, current ratio reflects the ability to oblige the short term debts of a company. It is calculated based on the current assets and current liabilities; a company has in an accounting period. A current ratio is a useful tool for analysis of financials of a company.

Calculate the current ratio of Company P as follows:

Here,

Current assets     =     $11,500 (3)

Current liabilities=     $4,000 (short-term notes payable)

Current ratio=Current assetsCurrent liabilities= $11,500$4,000=2.875

Therefore, the current ration of Company P is 2.875

In this case, Company P has more current assets than current liabilities. Therefore, Company P has better position to repay the current liabilities.

Working note:

(3) Calculate the value of current assets

Total current assets = (Cash+Short-term investment)=($6,500+$5,000)=$11,500

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Chapter 2 Solutions

INTRO TO FIN ACCT (LL W/ ACCESS-1 SMSTR

Ch. 2 - 11. What is a journal entry? Ch. 2 - 12. What is a T-account? What is its purpose? Ch. 2 - 13. How is the current ratio computed and...Ch. 2 - Prob. 14QCh. 2 - 1. If a publicly traded company is trying to...Ch. 2 - Prob. 2MCQCh. 2 - 3. Total liabilities on a balance sheet at the end...Ch. 2 - 4. The dual effects concept can best be described...Ch. 2 - 5. The T-account is a tool commonly used for...Ch. 2 - Prob. 6MCQCh. 2 - 7. The Cash T-account has a beginning balance of...Ch. 2 - 8. Which of the following statements are true...Ch. 2 - Prob. 9MCQCh. 2 - Prob. 10MCQCh. 2 - Prob. 1MECh. 2 - Matching Definitions with Terms Match each...Ch. 2 - M2-3 Identifying Events as Accounting...Ch. 2 - Classifying Accounts on a Balance Sheet The...Ch. 2 - Determining Financial Statement Effects of Several...Ch. 2 - Prob. 6MECh. 2 - Prob. 7MECh. 2 - Recording Simple Transactions For each transaction...Ch. 2 - Completing T-Accounts For each transaction in M2-5...Ch. 2 - Preparing a Trial Balance Complete M2-9 and then...Ch. 2 - Prob. 11MECh. 2 - Prob. 12MECh. 2 - Prob. 13MECh. 2 - Matching Definitions with Terms Match each...Ch. 2 - Identifying Account Titles The following are...Ch. 2 - Classifying Accounts and Their Usual Balances As...Ch. 2 - Determining Financial Statement Effects of Several...Ch. 2 - Nike, Inc., with headquarters in Beaverton,...Ch. 2 - Refer to E2-4. Required: For each of the events...Ch. 2 - Prob. 7ECh. 2 - Recording Investing and Financing...Ch. 2 - Analyzing the Effects of Transactions in...Ch. 2 - Prob. 10ECh. 2 - Inferring Investing and Financing Transactions and...Ch. 2 - Inferring Investing and Financing Transactions and...Ch. 2 - Jameson Corporation was organized on May 1. The...Ch. 2 - Prob. 14ECh. 2 - Prob. 15ECh. 2 - Prob. 16ECh. 2 - Waldman Furniture Repair Service, a company with...Ch. 2 - Inferring Typical Investing and Financing...Ch. 2 - Prob. 19ECh. 2 - Prob. 20ECh. 2 - Prob. 21ECh. 2 - Prob. 1PCh. 2 - Prob. 2PCh. 2 - Prob. 3PCh. 2 - Required: Using events (a) through (i) in P2-3,...Ch. 2 - Prob. 5PCh. 2 - Refer to P2-5. Required: For each of the...Ch. 2 - Identifying Accounts on a Classified Balance Sheet...Ch. 2 - Russeck Incorporated is a small manufacturing...Ch. 2 - Prob. 3APCh. 2 - Required: Using the events (a) through (h) in...Ch. 2 - Prob. 1CONCh. 2 - Refer to the financial statements of American...Ch. 2 - Prob. 2CPCh. 2 - Refer to the financial statements of American...Ch. 2 - Prob. 4CPCh. 2 - Prob. 5CPCh. 2 - Prob. 6CPCh. 2 - Your best friend from home writes you a letter...Ch. 2 - Prob. 8CP
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