Shouldn't assets be owner's equity - liabilities? Aren't liabilities like costs? Why is it equity+ liabilities? April 23 Cash Jim Xu, Capital Invest cash in XuCo. The above journal entry will: 14,000 14,000 a) Increase Capital and decrease Cash b) Increase Cash and decrease Capital c) Increase Cash and increase Capital d) Decrease Cash and decrease Capital You are one of the accountants at Grace Manufacturing Company. Grace has a $ 50 million loan with Lone Star Bank. One of the stipulations on the loan is that Grace must have a current ratio of 1.5; in other words, Grace's current assets must be at least one and one-half of the current liabilities. Based on the preliminary financial statements for the year just ended, Grace will violate the stipulation. Violation will negatively affect current and future loans. The accounting staff has identified two options to fix the problem that include: a. Reclassifying "long-term investments" as "short-term investments." Doing this would require a statement from management that the intention is to sell the property within one year. Actually, Grace intends to hold the investment for several years, and the classification would be changed back to long-term next year when the threat of loan violation has disappeared. b. Reclassifying certain short-term loans as long-term on the basis that Grace will refinance the loans. Technically, this is true. However, Grace has no formal refinancing commitment and will not have one until at least six months from now. c. Present the findings of the accounting staff to the Board of Directors. What points will you emphasize in your presentation? What is your recommendation? Use the following account types to form the expanded accounting equation. Begin the equity section with Contributed Capital + Retained Earnings. Then, identify whether the item increases, '+', or decreases, equity. Cash Accounts Receivable Common Stock Assets Accounts Payable Unearned Revenues Expenses Revenues Liabilities Dividends
Shouldn't assets be owner's equity - liabilities? Aren't liabilities like costs? Why is it equity+ liabilities? April 23 Cash Jim Xu, Capital Invest cash in XuCo. The above journal entry will: 14,000 14,000 a) Increase Capital and decrease Cash b) Increase Cash and decrease Capital c) Increase Cash and increase Capital d) Decrease Cash and decrease Capital You are one of the accountants at Grace Manufacturing Company. Grace has a $ 50 million loan with Lone Star Bank. One of the stipulations on the loan is that Grace must have a current ratio of 1.5; in other words, Grace's current assets must be at least one and one-half of the current liabilities. Based on the preliminary financial statements for the year just ended, Grace will violate the stipulation. Violation will negatively affect current and future loans. The accounting staff has identified two options to fix the problem that include: a. Reclassifying "long-term investments" as "short-term investments." Doing this would require a statement from management that the intention is to sell the property within one year. Actually, Grace intends to hold the investment for several years, and the classification would be changed back to long-term next year when the threat of loan violation has disappeared. b. Reclassifying certain short-term loans as long-term on the basis that Grace will refinance the loans. Technically, this is true. However, Grace has no formal refinancing commitment and will not have one until at least six months from now. c. Present the findings of the accounting staff to the Board of Directors. What points will you emphasize in your presentation? What is your recommendation? Use the following account types to form the expanded accounting equation. Begin the equity section with Contributed Capital + Retained Earnings. Then, identify whether the item increases, '+', or decreases, equity. Cash Accounts Receivable Common Stock Assets Accounts Payable Unearned Revenues Expenses Revenues Liabilities Dividends
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Shouldn't assets be owner's equity - liabilities? Aren't liabilities like costs? Why is it
equity+ liabilities?
April 23 Cash
Jim Xu, Capital
Invest cash in XuCo.
The above journal entry will:
14,000
14,000
a) Increase Capital and decrease Cash
b) Increase Cash and decrease Capital
c) Increase Cash and increase Capital
d) Decrease Cash and decrease Capital
You are one of the accountants at Grace Manufacturing Company. Grace has a $ 50
million loan with Lone Star Bank. One of the stipulations on the loan is that Grace must
have a current ratio of 1.5; in other words, Grace's current assets must be at least one
and one-half of the current liabilities. Based on the preliminary financial statements
for the year just ended, Grace will violate the stipulation. Violation will negatively
affect current and future loans. The accounting staff has identified two options to fix
the problem that include:
a. Reclassifying "long-term investments" as "short-term investments." Doing this
would require a statement from management that the intention is to sell the property
within one year. Actually, Grace intends to hold the investment for several years, and
the classification would be changed back to long-term next year when the threat of
loan violation has disappeared.
b. Reclassifying certain short-term loans as long-term on the basis that Grace will
refinance the loans. Technically, this is true. However, Grace has no formal refinancing
commitment and will not have one until at least six months from now.
c. Present the findings of the accounting staff to the Board of Directors. What points
will you emphasize in your presentation? What is your recommendation?
Use the following account types to form the expanded accounting equation. Begin the
equity section with Contributed Capital + Retained Earnings. Then, identify whether
the item increases, '+', or decreases, equity.
Cash
Accounts
Receivable
Common
Stock
Assets
Accounts
Payable
Unearned
Revenues
Expenses
Revenues
Liabilities
Dividends
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