Financial Accounting
9th Edition
ISBN: 9781259222139
Author: Robert Libby, Patricia Libby, Frank Hodge Ch
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 2, Problem 2.15E
Analyzing the Effects of Transactions Using T-Accounts and Interpreting the
Higgins Company began operations last year. You are a member of the management team investigating expansion ideas that will require borrowing funds from banks. At the start of the current year. Higgins’s T-account balances were as follows:
Assets:
| Cash | |
| 5,000 |
Liabilities:
| Short-Term Investments |
| 2,500 |
| Property and Equipment |
| 3,000 |
| Short-Term Notes Payable 2,200 |
Stockholders ' Equity:
| Long-Term Notes Payable 1,800 |
| Common Stock | |
| 1 | 500 |
| Additional Paid-in Capital |
| 4,000 |
| 3,000 |
Required:
1. Using the data from these T-accounts, determine the amounts for the following on January 1 of the current year
Assets $ ____ = Liabilities $__+ Stockholders’ Equity $__
2. Enter the following transactions for the current year in the T-accounts:
- (a) Borrowed $4,000 from a local bank, signing a note due in three years.
- (b) Sold $1,500 of the investments for $1,500 cash.
- (c) Sold one-half of the property and equipment for $1,500 in cash.
- (d) Declared and paid $,800 in cash dividends to stockholders.
3. Compute ending balances in the T-accounts to determine amounts for the following on December 31 of the current year
Assets $ _____ = Liabilities $ _____ + Stockholders’ Equity $ _____
4. Calculate the current ratio at December 31 of the current year. If the industry average for the current ratio is 1.50. What does your computation suggest to you about Higgins Company? Would you suggest that Higgins Company increase its short-term liabilities? Why or why not?
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You have just been hired as a financial analyst for Lydex Company, a manufacturer of safety helmets. Your boss has asked you to perform a comprehensive analysis of the company’s financial statements, including comparing Lydex’s performance to its major competitors. The company’s financial statements for the last two years are as follows:
Lydex CompanyComparative Balance Sheet
This Year
Last Year
Assets
Current assets:
Cash
$ 870,000
$ 1,110,000
Marketable securities
0
300,000
Accounts receivable, net
2,340,000
1,440,000
Inventory
3,510,000
2,100,000
Prepaid expenses
240,000
180,000
Total current assets
6,960,000
5,130,000
Plant and equipment, net
9,340,000
8,960,000
Total assets
$ 16,300,000
$ 14,090,000
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities
$ 3,920,000
$ 2,800,000
Note payable, 10%
3,600,000
3,000,000
Total liabilities
7,520,000
5,800,000
Stockholders' equity:
Common stock, $70 par value…
You have just been hired as a financial analyst for Lydex Company, a manufacturer of safety helmets. Your boss has asked you to perform a comprehensive analysis of the company’s financial statements, including comparing Lydex’s performance to its major competitors. The company’s financial statements for the last two years are as follows:
Lydex CompanyComparative Balance Sheet
This Year
Last Year
Assets
Current assets:
Cash
$ 870,000
$ 1,110,000
Marketable securities
0
300,000
Accounts receivable, net
2,340,000
1,440,000
Inventory
3,510,000
2,100,000
Prepaid expenses
240,000
180,000
Total current assets
6,960,000
5,130,000
Plant and equipment, net
9,340,000
8,960,000
Total assets
$ 16,300,000
$ 14,090,000
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities
$ 3,920,000
$ 2,800,000
Note payable, 10%
3,600,000
3,000,000
Total liabilities
7,520,000
5,800,000
Stockholders' equity:
Common stock, $70 par value…
Chapter 2 Solutions
Financial Accounting
Ch. 2 - Prob. 1QCh. 2 - Define the following: a. Asset b. Current asset c....Ch. 2 - Explain what the following accounting terms mean:...Ch. 2 - Why are accounting assumptions necessary?Ch. 2 - For accounting purposes, what is an account?...Ch. 2 - What is the fundamental accounting model?Ch. 2 - Prob. 7QCh. 2 - Explain what debit and credit mean.Ch. 2 - Prob. 9QCh. 2 - Prob. 10Q
Ch. 2 - Prob. 11QCh. 2 - Prob. 12QCh. 2 - How is the current ratio computed and interpreted?Ch. 2 - Prob. 14QCh. 2 - Prob. 1MCQCh. 2 - Which of the following is not an asset? a....Ch. 2 - Total liabilities on a balance sheet at the end of...Ch. 2 - The dual effects concept can best be described as...Ch. 2 - The T-account is a tool commonly used for...Ch. 2 - Prob. 6MCQCh. 2 - The Cash T-account has a beginning balance of...Ch. 2 - Prob. 8MCQCh. 2 - At the end of a recent year, The Gap, Inc.,...Ch. 2 - Prob. 10MCQCh. 2 - Matching Definitions with Terms Match each...Ch. 2 - Matching Definitions with Terms Match each...Ch. 2 - Identifying Events as Accounting Transactions...Ch. 2 - Classifying Accounts on a Balance Sheet The...Ch. 2 - Determining Financial Statement Effects of Several...Ch. 2 - Prob. 2.6MECh. 2 - Prob. 2.7MECh. 2 - Prob. 2.8MECh. 2 - Prob. 2.9MECh. 2 - Prob. 2.10MECh. 2 - Prob. 2.11MECh. 2 - Computing and Interpreting the Current Ratio...Ch. 2 - Identifying Transactions as Investing or Financing...Ch. 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 - Determining Financial Statement Effects of Several...Ch. 2 - Recording Investing and Financing Activities Refer...Ch. 2 - Prob. 2.7ECh. 2 - Recording Investing and Financing Activities...Ch. 2 - Analyzing the Effects of Transactions In...Ch. 2 - Analyzing the Effects of Transactions In...Ch. 2 - Prob. 2.11ECh. 2 - Inferring Investing and Financing Transactions and...Ch. 2 - Recording Journal Entries Nathanson Corporation...Ch. 2 - Prob. 2.14ECh. 2 - Analyzing the Effects of Transactions Using...Ch. 2 - Prob. 2.16ECh. 2 - Prob. 2.17ECh. 2 - Prob. 2.18ECh. 2 - Inferring Typical Investing and Financing...Ch. 2 - Prob. 2.20ECh. 2 - Identifying the Investing and Financing Activities...Ch. 2 - Prob. 2.22ECh. 2 - Identifying Accounts on a Classified Balance Sheet...Ch. 2 - Determining Financial Statement Effects of Various...Ch. 2 - Prob. 2.3PCh. 2 - Prob. 2.4PCh. 2 - Prob. 2.5PCh. 2 - Prob. 2.6PCh. 2 - Prob. 2.1APCh. 2 - Determining Financial Statement Effects of Various...Ch. 2 - Recording Transactions in T-Accounts, Preparing...Ch. 2 - Prob. 2.4APCh. 2 - Accounting for the Establishment of a New Business...Ch. 2 - Prob. 2.1CPCh. 2 - Prob. 2.2CPCh. 2 - Prob. 2.3CPCh. 2 - Prob. 2.4CPCh. 2 - Prob. 2.5CPCh. 2 - Prob. 2.6CPCh. 2 - Prob. 2.7CPCh. 2 - Prob. 2.8CP
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