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
- Yami Enterprises began the accounting period with $75,000 of merchandise, and the net cost of purchases was $265,000. A physical inventory showed $85,000 of merchandise unsold at the end of the period. The cost of goods sold by York Enterprises for the period is ____.arrow_forwardA firm sells 2,800 units of an item each year. The carrying cost per unit is $3.26 and the fixed costs per order are $74. What is the economic order quantity? (Please round units to the nearest whole number) General Accountarrow_forwardAns general accounting questionarrow_forward
- Kavya Enterprises reported net sales of $65,000. The beginning accounts receivable was $12,000, and the ending accounts receivable was $18,500. What is the days sales collected for Kavya Enterprises? (Rounded answer to nearest day)arrow_forwardGeneral accounting and questionarrow_forwardWhat is the days sales collected for kavya enterprises?arrow_forward
- General Accountarrow_forwardHello expert give me solution this questionarrow_forwardE9.19B (LO 3) (Nonmonetary Exchange) Mathews Company exchanged equipment used in its manufacturing operations plus $6,000 in cash for similar equipment used in the operations of Biggio Company. The following information pertains to the exchange: Mathews Co. Equipment (cost) Accumulated depreciation Fair value of equipment Cash given up Instructions $56,000 38,000 25,000 6,000 Biggio Co. $56,000 20,000 31,000 a. Prepare the journal entries to record the exchange on the books of both companies. Assume that the exchange lacks commercial substance. b. Prepare the journal entries to record the exchange on the books of both companies. Assume that the exchange has commercial substance.arrow_forward
- Correct Answerarrow_forwardSophia sold land to Brian. The sales price was $250,000. Sophia paid a commission to a real estate broker of $15,000 and paid other selling expenses of $3,200. Sophia's basis in the land was $135,500. What was Sophia's gain realized on the sale of the land?arrow_forwardprovide answer general accountingarrow_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