FINANCIAL ACCOUNTING (LOOSELEAF)
FINANCIAL ACCOUNTING (LOOSELEAF)
10th Edition
ISBN: 9781260481358
Author: Libby
Publisher: MCG
Question
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Chapter 2, Problem 5P

1.

To determine

Record the journal entries of Incorporation A.

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 Incorporation A are as follows:

Cash borrowed from banks:

DateAccounts title and explanationRef.Debit ($)Credit ($)
 Cash (+A) 18,266 
 Notes payable (+L)  18,266
 (To record cash borrowed from bank)   

Table (1)

Purchase of additional investment:

DateAccounts title and explanationRef.Debit ($)Credit ($)
 Long-term investment (+A) (1) 4,200 
 Short-term investment (+A) (2) 16,800 
     Cash (-A)  21,000
 (To record purchase of investment)   

Table (2)

Working note:

Calculate the value of long-term investment

Long-term investment = Total investment value ×15=$21,000×15=$4,200        (1)

Calculate the value of short-term investment

Long-term investment = (Total investment value  Long-term investment )=$21,000$4,200=$16,800        (2)

Property, plant and equipment purchased on account and in cash:

DateAccounts title and explanationRef.Debit ($)Credit ($)
 Buildings (+A) 10,981 
 Cash (-A)  9,571
 Short-term notes payable (+L)  1,410
 (To record purchase of property, plant and equipment on account and in cash)   

Table (3)

Issuance of common stock:

DateAccounts title and explanationRef.Debit ($)Credit ($)
 Cash (+A) 1,469 
 Common stock (+SE)  1
 Additional paid-in capital (+SE)  1,468
 (To record the issuance of common stock)   

Table (4)

Cash paid to invest short-term investment:

DateAccounts title and explanationRef.Debit ($)Credit ($)
 Short-term investment (+A) 18,810 
     Cash (-A)  18,810
 (To record cash paid to short-term investment)   

Table (5)

Declared cash dividends:

DateAccounts title and explanationRef.Debit ($)Credit ($)
 Retained earnings (-SE) 11,126 
 Dividends payable (+L)  11,126
 (To record dividends declared to the investors)   

Table (6)

2.

To determine

Prepare T-accounts for the given accounts.

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 for the given accounts are as follows:

Cash
Beg.13,844
(a)18,26621,000(b)
(d)1,4699,571(c)
(e)18,810  
21,818
Short-Term Investments
Beg.11,233 
(b)16,80018,810(e)
9,223 
Accounts Receivable
Beg.17,460
    
17,460
Inventories
Beg.2,111  
2,111  
Other Current Assets
Beg.23,883  
23,883
Long-term investments
Beg.130,162
(b)4,200  
134,362
Property, Plant, and Equipment
Beg.20,624 
(c)10,981  
31,605
Other Non-current Assets
Beg.12,522 
    
12,522
Accounts Payable
  30,196Beg.
 30,196
Accrued  Expenses
 18,453Beg.
  18,453 
Unearned  Revenue
 8,491Beg.
  8,491 
Short-term Notes Payable
 6,308
  1,410(c)
 7,718
Dividends Payable
 0Beg.
  11,126(f)
 11,126
Long-term Debt
 28,987Beg.
  18,266(a)
 47,253
Other Non-current Liabilities
 27,857Beg.
   
 27,857
Common  Stock
 1Beg
  1(d)
 2
Additional Paid-in Capital
 23,312Beg.
  1,468(d)
 24,780
Retained Earnings
 88,234Beg.
(f)11,126  
 77,108

3.

To determine

Prepare Trial balance of Incorporation A.

3.

Expert Solution
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Explanation of Solution

Prepare Trial balance of Incorporation A as shown below:

Incorporation A
Trial Balance
For the Year Ended September 29, 2018
(in millions)
   
ParticularsDebitCredit
Cash28,263 
Short-term Investments51,882 
Accounts receivable17,874 
Inventories4,855 
Other current assets31,735 
Long-term investments198,914 
Property, plant, and equipment44,764 
Other noncurrent assets18,177 
Accounts payable 49,049
Accrued expenses 25,744
Unearned revenue 7,548
Short-term notes payable 19,883
Dividends payable 11,126
Long-term debt 115,473
Other noncurrent liabilities 43,251
Common stock 2
Additional paid-in capital 37,334
Retained earnings 87,054
     Totals396,464396,464

Table (7)

4.

To determine

Prepare the balance sheet of Incorporation A at September 26, 2018.

4.

Expert Solution
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Explanation of Solution

Balance Sheet:

Balance Sheet summarizes the assets, the liabilities, and the Stockholder’s equity of a Incorporation At a given date. It is also known as the statement of financial status of the business.

Balance sheet of Incorporation A is as follows:

Incorporation A
 Balance sheet
 at September 26, 2018
 (in millions)
Assets$ (in millions)$ (in million)
 Current Assets:  
    Cash21,818
    Short-term investments9,223
    Accounts receivable17,460
    Inventories2,111
    Other current assets23,883
        Total current assets74,495
    Long-term investments134,362
    Property, plant and equipment31,605
    Other noncurrent assets12,522
Total assets252,984
Liabilities and Stockholders’ Equity
Current Liabilities:
    Accounts payable30,196
    Accrued expenses18,453
    Unearned revenue8,491
    Dividends payable11,126
    Short-term notes payable7,718
        Total current liabilities75,984
    Long-term debt47,253
    Other noncurrent liabilities27,857
        Total liabilities151,094
Stockholders’ Equity:
    Common stock2
    Additional paid-in capital24,780
    Retained earnings77,108
        Total stockholders’ equity101,890
 Total liabilities and stockholders’ equity252,984

Table (8)

Therefore, the total assets of Incorporation A are $252,984, and the total liabilities and stockholders’ equity is $252,984.

5.

To determine

Calculate the current ratio of Incorporation A, and also suggest about the company.

5.

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 of company. A current ratio is a useful tool for analysis of financials of a company.

Calculate the current ratio of Incorporation A as follows:

Current ratio=Current assetsCurrent liabilities= $74,495$75,984=0.98

Therefore, the current ration of Incorporation A is 0.98

Current ratio of Incorporation A has relatively low liquidity, because for every one dollar of current liabilities, Company C has less than one dollar of current assets.

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Chapter 2 Solutions

FINANCIAL ACCOUNTING (LOOSELEAF)

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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