Connect Access Card for Financial Accounting
Connect Access Card for Financial Accounting
9th Edition
ISBN: 9781259738678
Author: Robert Libby, Patricia Libby, Frank Hodge Ch
Publisher: McGraw-Hill Education
bartleby

Concept explainers

bartleby

Videos

Question
Book Icon
Chapter 2, Problem 2.17E

1.

To determine

Prepare T-accounts of Company S.

1.

Expert Solution
Check Mark

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.

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:

  1. (a) The title of the account
  2. (b) The left or debit side
  3. (c) The right or credit side

T-accounts of company S are as follows:

Cash
Beg.0
(a)40,0004,000(c)
 1,000(d)
35,000
Short-Term Notes Receivable
Beg.0
(e)4,000
 
4,000 
Land
Beg.0
(b)16,0004,000(e)
 
12,000 
Equipment
Beg.0
(c)20,000
(d)1,000
21,000  
Short-Term Notes Payable
 0Beg.
 16,000(b)
 
 16,000
Long-Term Notes Payable
 0Beg.
 16,000(c)
 
 16,000
Common Stock
 0Beg.
 10,000(a)
 
 10,000
Additional Paid-in Capital
 Beg.
 30,000(a)
 
  30,000

2.

To determine

Prepare trial balance at December 31, 2016.

2.

Expert Solution
Check Mark

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, 2016
Particulars

Debit

($)

Credit

($)

Cash35,000
Short-term notes receivable4,000
Land12,000
Equipment21,000
Short-term notes payable16,000
Long-term notes payable16,000
Common stock10,000
Additional paid-in capital30,000
Totals72,00072,000

Table (1)

Therefore, the total of debit, and credit columns of trial balance is $72,000 and agree.

3.

To determine

Prepare the balance sheet of Company S.

3.

Expert Solution
Check Mark

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, 2016
 Assets $  Liabilities $
 Current assets: Current liabilities:
Cash35,000Short-term notes payable16,000
Short-term investments4,000Total current liabilities16,000
Total current assets39,000Long-term notes payable16,000
 Total liabilities (A)32,000
Land12,000 Stockholders' equity
Equipment21,000 Common stock10,000
   Additional paid-in capital30,000
 Total stockholder's equity (B)40,000
 Total assets72,000Total liabilities and stockholder’s equity (A+B)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.

To determine

Calculate the current ration of Company S for 2016, 2017 and 2018, and also suggest about the company.

4.

Expert Solution
Check Mark

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.

Current ratio of Company S is as follows:

YearCurrent ratio
20162.44 (1)
20172.26 (2)
20181.18 (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 2016

Current ratio=Current assetsCurrent liabilities= $39,000$16,000=2.44 (1)

Calculate current ratio for 2017

Current ratio=Current assetsCurrent liabilities= $52,000$23,000=2.26 (2)

Calculate current ratio for 2018

Current ratio=Current assetsCurrent liabilities= $47,000$40,000=1.18 (3)

5.

To determine

Describe the recommendation about lending money to Company S.

5.

Expert Solution
Check Mark

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?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
Financial Accounting Question need help with this question
Kindly help me with accounting questions
General accounting

Chapter 2 Solutions

Connect Access Card for Financial Accounting

Ch. 2 - Prob. 11QCh. 2 - Prob. 12QCh. 2 - How is the current ratio computed and interpreted?Ch. 2 - Prob. 14QCh. 2 - Prob. 1MCQCh. 2 - Which of the following is not an asset? a....Ch. 2 - Total liabilities on a balance sheet at the end of...Ch. 2 - The dual effects concept can best be described as...Ch. 2 - The T-account is a tool commonly used for...Ch. 2 - Prob. 6MCQCh. 2 - The Cash T-account has a beginning balance of...Ch. 2 - Prob. 8MCQCh. 2 - At the end of a recent year, The Gap, Inc.,...Ch. 2 - Prob. 10MCQCh. 2 - Matching Definitions with Terms Match each...Ch. 2 - Matching Definitions with Terms Match each...Ch. 2 - Identifying Events as Accounting Transactions...Ch. 2 - Classifying Accounts on a Balance Sheet The...Ch. 2 - Determining Financial Statement Effects of Several...Ch. 2 - Prob. 2.6MECh. 2 - Prob. 2.7MECh. 2 - Prob. 2.8MECh. 2 - Prob. 2.9MECh. 2 - Prob. 2.10MECh. 2 - Prob. 2.11MECh. 2 - Computing and Interpreting the Current Ratio...Ch. 2 - Identifying Transactions as Investing or Financing...Ch. 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 - Determining Financial Statement Effects of Several...Ch. 2 - Recording Investing and Financing Activities Refer...Ch. 2 - Prob. 2.7ECh. 2 - Recording Investing and Financing Activities...Ch. 2 - Analyzing the Effects of Transactions In...Ch. 2 - Analyzing the Effects of Transactions In...Ch. 2 - Prob. 2.11ECh. 2 - Inferring Investing and Financing Transactions and...Ch. 2 - Recording Journal Entries Nathanson Corporation...Ch. 2 - Prob. 2.14ECh. 2 - Analyzing the Effects of Transactions Using...Ch. 2 - Prob. 2.16ECh. 2 - Prob. 2.17ECh. 2 - Prob. 2.18ECh. 2 - Inferring Typical Investing and Financing...Ch. 2 - Prob. 2.20ECh. 2 - Identifying the Investing and Financing Activities...Ch. 2 - Prob. 2.22ECh. 2 - Identifying Accounts on a Classified Balance Sheet...Ch. 2 - Determining Financial Statement Effects of Various...Ch. 2 - Prob. 2.3PCh. 2 - Prob. 2.4PCh. 2 - Prob. 2.5PCh. 2 - Prob. 2.6PCh. 2 - Prob. 2.1APCh. 2 - Determining Financial Statement Effects of Various...Ch. 2 - Recording Transactions in T-Accounts, Preparing...Ch. 2 - Prob. 2.4APCh. 2 - Accounting for the Establishment of a New Business...Ch. 2 - Prob. 2.1CPCh. 2 - Prob. 2.2CPCh. 2 - Prob. 2.3CPCh. 2 - Prob. 2.4CPCh. 2 - Prob. 2.5CPCh. 2 - Prob. 2.6CPCh. 2 - Prob. 2.7CPCh. 2 - Prob. 2.8CP
Knowledge Booster
Background pattern image
Accounting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Recommended textbooks for you
Text book image
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning
The ACCOUNTING EQUATION For BEGINNERS; Author: Accounting Stuff;https://www.youtube.com/watch?v=56xscQ4viWE;License: Standard Youtube License