
1.
Prepare T-accounts of Company S.
1.

Explanation of Solution
T-account:
T-account refers to an individual account, where the increases or decreases in the value of specific asset, liability,
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:
- (a) The title of the account
- (b) The left or debit side
- (c) The right or credit side
T-accounts of company S are as follows:
Cash | |||
Beg. | 0 | ||
(a) | 40,000 | 4,000 | (c) |
1,000 | (d) | ||
35,000 |
Short-Term Notes Receivable | |||
Beg. | 0 | ||
(e) | 4,000 | ||
4,000 |
Land | |||
Beg. | 0 | ||
(b) | 16,000 | 4,000 | (e) |
12,000 |
Equipment | |||
Beg. | 0 | ||
(c) | 20,000 | ||
(d) | 1,000 | ||
21,000 |
Short-Term Notes Payable | |||
0 | Beg. | ||
16,000 | (b) | ||
16,000 |
Long-Term Notes Payable | |||
0 | Beg. | ||
16,000 | (c) | ||
16,000 |
Common Stock | |||
0 | Beg. | ||
10,000 | (a) | ||
10,000 |
Additional Paid-in Capital | |||
Beg. | |||
30,000 | (a) | ||
30,000 |
2.
Prepare the
2.

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 S is as follows:
Company S | ||
Trial Balance | ||
December 31, 2014 | ||
Particulars |
Debit ($) |
Credit ($) |
Cash | 35,000 | |
Short-term notes receivable | 4,000 | |
Land | 12,000 | |
Equipment | 21,000 | |
Short-term notes payable | 16,000 | |
Long-term notes payable | 16,000 | |
Common stock | 10,000 | |
Additional paid-in capital | 30,000 | |
Totals | 72,000 | 72,000 |
Table (1)
Therefore, the total of debit, and credit columns of trial balance is $72,000 and agree.
3.
Prepare the
3.

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 S is as follows:
Company S | ||||
Balance sheet | ||||
December 31, 2014 | ||||
Assets | $ | Liabilities | $ | |
Current assets: | Current liabilities: | |||
Cash | 35,000 | Short-term notes payable | 16,000 | |
Short-term investments | 4,000 | Total current liabilities | 16,000 | |
Total current assets | 39,000 | Long-term notes payable | 16,000 | |
Total liabilities (A) | 32,000 | |||
Land | 12,000 | Stockholders' equity | ||
Equipment | 21,000 | Common stock | 10,000 | |
Additional paid-in capital | 30,000 | |||
Total stockholder's equity (B) | 40,000 | |||
Total assets | 72,000 | Total liabilities and stockholder’s equity | 72,000 |
Table (2)
Therefore, the total assets of Company S are $72,000, and the total liabilities and stockholders’ equity is $72,000.
4.
Calculate the current ration of Company S for 2014, 2015 and 2016, and also suggest about the company.
4.

Explanation of Solution
A part of
Current ratio of Company S is as follows:
Year | Current ratio |
2014 | 2.44 (1) |
2015 | 2.26 (2) |
2016 | 1.18 (3) |
Table (3)
In this case, the liquidity of Company S decreased over the three years, because the current ratio of company has decreasing tendency. So, company has difficult situation to repay the current obligation.
Working note:
Calculate current ratio for 2014
Calculate current ratio for 2015
Calculate current ratio for 2016
5.
Describe the recommendation about lending money to Company S.
5.

Explanation of Solution
The bank’s vice president should not lend loan to Company S, because current ratio of company has decreasing tendency over the three years. It indicates company S has difficult situation to repay the current obligation of business, and it creates problem to repay the loan. So, the vice president of bank should not provide loan to Company S.
Want to see more full solutions like this?
Chapter 2 Solutions
Financial Accounting, 8th Edition
- Subject. General accountingarrow_forwardCompute the assets turnover ratioarrow_forwardExercise 5-18 (Algo) Calculate receivables ratios (LO5-8) Below are amounts (in millions) from three companies' annual reports. WalCo TarMart Costbet Beginning Accounts Receivable $1,795 6,066 609 Ending Accounts Receivable $2,742 6,594 645 Net Sales $320,427 65,878 66,963 Required: 1. Calculate the receivables turnover ratio and the average collection period for WalCo, TarMart and CostGet 2. Which company appears most efficient in collecting cash from sales? Complete this question by entering your answers in the tabs below. Required 1 Required C Calculate the receivables turnover ratio and the average collection period for WalCo, TarMart and CostGet. (Enter your answers in millions rounded to 1 decimal place.) Receivables Turnover Ratio: WalCo S TarMart. S CostGet S Choose Numerator Choose Numerator "ValCo FarMart CostGet 320,427 $ 65.878 66,963 Choose Denominator Receivables turnover ratio 2,742.0 116.9 times 0 times 0 times Average Collection Period Choose Denominator Average…arrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education





