
1.
Discuss the
1.

Explanation of Solution
Accounting equation effect for given accounts is as follows:
Figure (1)
Therefore, the total assets are equal to the liabilities and
2.
Prepare
2.

Explanation of Solution
Prepare journal entries to record the transactions as shown below:
No. | Account titles and Explanation | Debit | Credit |
a. | Cash (+A) | $4,000 | |
Notes payable (+L) | $4,000 | ||
b. | Cash (+A) | $1,500 | |
Investments (-A) | $1,500 | ||
c. | Cash (+A) | $1,500 | |
Property and Equipment (-A) | $1,500 | ||
d. | $800 | ||
Dividends payable (+L) | $800 | ||
e. | Dividends payable (-L) | $800 | |
Cash (-A) | $800 |
Table (1)
3.
Prepare T-accounts and also report the given transactions for the current year.
3.

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. | 5,000 | ||
(a) | 4,000 | ||
(b) | 1,500 | ||
(c) | 1,500 | 800 | (d) |
End. | 11,200 |
Short-Term Investments | |||
Beg. | 2,500 | ||
1,500 | (b) | ||
End. | 1,000 |
Property & Equipment | |||
Beg. | 3,000 | ||
1,500 | (c) | ||
End. | 1,500 |
Short-Term Notes Payable | |||
2,200 | Beg. | ||
2,200 | End. |
Long-Term Notes Payable | |||
800 | Beg. | ||
4,000 | (a) | ||
4,800 | End. |
Common Stock | |||
500 | Beg. | ||
500 |
Additional Paid-in Capital | |||
4,000 | Beg. | ||
4,000 |
Retained Earnings | |||
3,000 | Beg. | ||
(d) | 800 | ||
2,200 |
4.
Prepare
4.

Explanation of Solution
Trail balance is given below:
Company H | ||
Trial Balance | ||
For the Year Ended December 31 | ||
Particulars | Debit | Credit |
Cash | $11,200 | |
Short-term investments | $1,000 | |
Property and equipment | $1,500 | |
Notes payable (current) | $2,200 | |
Notes payable (noncurrent) | $4,800 | |
Dividends payable | $0 | |
Common stock | $500 | |
Additional paid-in capital | $4,000 | |
Retained earnings | $2,200 | |
Totals | $13,700 | $13,700 |
Table (2)
5.
Prepare a classified
5.

Explanation of Solution
Prepare a classified balance sheet.
Company H | |
Balance Sheet | |
At December 31 | |
Assets | |
Current Assets: | |
Cash | $11,200 |
Short-term investments | 1,000 |
Total current assets | 12,200 |
Property and equipment | 1,500 |
Total assets | $13,700 |
Liabilities and Stockholders’ Equity | |
Current Liabilities: | |
Notes payable | $2,200 |
Total current liabilities | 2,200 |
Notes payable | 4,800 |
Total liabilities | 7,000 |
Stockholders’ Equity | |
Common stock | 500 |
Additional paid-in capital | 4,000 |
Retained earnings | 2,200 |
Total stockholders’ equity | 6,700 |
Total liabilities and stockholders’ equity | $13,700 |
Table (3)
6.
Calculate the
6.

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 H:
Therefore, the current ration of Company H during the current year is 5.55.
In this case, Company H’s current ratio is more than the industrial average. It indicates Company H has better position to repay the current liabilities.
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Chapter 2 Solutions
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