Financial Accounting, 8th Edition
Financial Accounting, 8th Edition
8th Edition
ISBN: 9780078025556
Author: Robert Libby, Patricia Libby, Daniel Short
Publisher: McGraw-Hill Education
Question
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Chapter 2, Problem 3P

1.

To determine

Open the T-accounts for each of the balance sheet accounts, and enter the beginning balance for the current year.

1.

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.

This account is referred to as the T-account, because the alignment of the components of the account resembles the capital letter ‘T’.’ An account consists of the three main components which are as follows:

  1. (a) The title of the account
  2. (b) The left or debit side
  3. (c) The right or credit side

T-accounts for each of the balance sheet accounts are as follows:

Cash
Beg.22,000
Investments (short-term)
Beg.3,000
Accounts Receivable
Beg.3,000
Equipment
Beg.50,000
Factory Building
Beg.90,000
Intangibles
Beg.5,000
Accounts Payable
15,000Beg.
Accrued Liabilities Payable
4,000Beg.
Notes Payable (short-term)
7,000Beg.
Long-Term Notes Payable
47,000Beg.
Common Stock
10,000Beg.
Additional Paid-in Capital
80,000Beg.
Retained Earnings
31,000Beg.

2.

To determine

Prepare the T-account for the given balance sheet accounts, and to determine the ending balance of each account.

2.

Expert Solution
Check Mark

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.

This account is referred to as the T-account, because the alignment of the components of the account resembles the capital letter ‘T’.’ An account consists of the three main components which are as follows:

  1. (a) The title of the account
  2. (b) The left or debit side
  3. (c) The right or credit side

T-accounts for each of the balance sheet accounts are as follows:

Cash
Beg.22,000
(e)11,00010,000(a)
(f)9,0005,000(b)
(i)1,0005,000(c)
3,000(g)
8,000(h)
12,000
Investments (short-term)
Beg.3,000
(a)10,000
13,000
Accounts Receivable
Beg.3,000
3,000
Inventory
Beg.20,000
20,000
Notes Receivable (long-term)
Beg.1,000
(b)5,000
6,000
Equipment
Beg.50,000
(c)18,0001,000(i)
End.67,000
Factory Building
Beg.90,000
(h)24,000
End.114,000
Intangibles
Beg.5,000
(g)3,000
End.8,000
Notes Payable (short-term)
7,000Beg.
13,000(c)
9,000(f)
29,000
Accounts Payable
15,000Beg.
15,000
Accrued Liabilities Payable
4,000Beg.
4,000
Long-Term Notes Payable
47,000Beg.
16,000(h)
63,000
Common Stock
10,000Beg.
1,000(e)
11,000
Additional Paid-in Capital
80,000Beg.
10,000(e)
90,000
Retained Earnings
31,000Beg.
31,000

3.

To determine

Explain the response for event (d).

3.

Expert Solution
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Explanation of Solution

Business transaction:

Business transaction is a record of any economic activity, resulting in the change in the value of the assets, the liabilities, and the stockholder’s equities, of a business. Business transaction is also referred to as financial transaction.

In this case, hiring a new president is not creating any impact on assets, liabilities and stockholder’s equity of the business, because it is not a business transaction.

4.

To determine

Prepare the trial balance of Company C at December 31, 2015.

4.

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 C is as follows:

Company C
Trial balance
At December 31, 2015
ParticularsDebit
($)
Credit
($)
Cash12,000
Investments (short-term)13,000
Accounts receivable3,000
Inventory20,000
Notes receivable (long-term)6,000
Equipment67,000
Factory building114,000
Intangibles8,000
Accounts payable15,000
Accrued liabilities payable4,000
Notes payable (short-term)29,000
Notes payable (long-term)63,000
Common stock11,000
Additional paid-in capital90,000
Retained earnings31,000
Total243,000243,000

Table (1)

Therefore, the total of debit, and credit columns of trial balance is $243,000 and agree.

5.

To determine

Prepare the classified balance sheet of Company C.

5.

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 C on December, 31 is as follows:

Company C
 Balance sheet
 December 31, 2015
 Assets $ Liabilities $
 Current assets:  Current liabilities:
 Cash 12,000 Accounts payable 15,000
 Investment 13,000 Accrued liabilities payable 4,000
 Accounts receivable 3,000 Notes payable 29,000
 Inventory 20,000Total current liabilities 48,000
Total current assets 48,000Long-term notes payable 63,000
 Total liabilities (A) 111,000
 Notes receivable 6,000 Stockholders' equity
 Equipment 67,000 Common stock 11,000
 Factory building 114,000 Additional paid-in capital 90,000
 Intangibles 8,000 Retained earnings 31,000
 Total stockholder's equity (B) 132,000
 Total assets243,000 Total liabilities and stockholder’s equity  (A+B)243,000

Table (2)

Therefore, the total assets of Company C are $243,000, and the total liabilities and stockholders’ equity is $243,000.

6.

To determine

Calculate the current ratio of Company C for 2015 and evaluate the ratio.

6.

Expert Solution
Check Mark

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 C as follows:

Here,

Current assets = $48,000

Current liabilities= $48,000

Current ratio=Current assetsCurrent liabilities= $48,000$48,000=1.00

Therefore, the current ration of Company C for 2015 is 1.00

Current ratio of Company C has relatively low liquidity, because for every one dollar of current liabilities, Company C has only equal amount of one dollar of current assets.

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Chapter 2 Solutions

Financial Accounting, 8th Edition

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 - Prob. 1MECh. 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 - Prob. 5MECh. 2 - Prob. 6MECh. 2 - Prob. 7MECh. 2 - Prob. 8MECh. 2 - Prob. 9MECh. 2 - Prob. 10MECh. 2 - Prob. 11MECh. 2 - Prob. 12MECh. 2 - Prob. 13MECh. 2 - Prob. 1ECh. 2 - Prob. 2ECh. 2 - Prob. 3ECh. 2 - Prob. 4ECh. 2 - Determining Financial Statement Effects of Several...Ch. 2 - Prob. 6ECh. 2 - Prob. 7ECh. 2 - Analyzing the Effects of Transactions In...Ch. 2 - Prob. 9ECh. 2 - Prob. 10ECh. 2 - Prob. 11ECh. 2 - Prob. 12ECh. 2 - Prob. 13ECh. 2 - Prob. 14ECh. 2 - Prob. 15ECh. 2 - Prob. 16ECh. 2 - Inferring Typical Investing and Financing...Ch. 2 - Prob. 18ECh. 2 - Prob. 19ECh. 2 - Prob. 20ECh. 2 - Identifying Accounts on a Classified Balance Sheet...Ch. 2 - Prob. 2PCh. 2 - Prob. 3PCh. 2 - Prob. 4PCh. 2 - Prob. 5PCh. 2 - Prob. 6PCh. 2 - Prob. 1APCh. 2 - Prob. 2APCh. 2 - Prob. 3APCh. 2 - Prob. 4APCh. 2 - Prob. 1CPCh. 2 - Prob. 2CPCh. 2 - Prob. 3CPCh. 2 - Prob. 4CPCh. 2 - Prob. 5CPCh. 2 - Prob. 6CPCh. 2 - Prob. 7CPCh. 2 - Prob. 8CPCh. 2 - Prob. 1CC
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