1.
Open the T-accounts for each of the
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 for each of the balance sheet accounts are as follows:
Cash and Cash Equivalents | |||
Beg. | 78,519 |
Short-Term Investments | |||
Beg. | 12,909 |
Inventories | |||
Beg. | 141,692 |
Beg. | 15,036 |
Prepaid Expenses and Other Current Assets | |||
Beg. | 20,372 |
Property, Plant, and Equipment | |||
Beg. | 294,853 |
Intangibles | |||
Beg. | 45,128 |
Other Assets | |||
Beg. | 19,816 |
Accounts Payable | |||
26,958 | Beg. |
Accrued Expenses Payable | |||
127,639 | Beg. |
Long-Term Debt | |||
165,032 | Beg. |
Other Long-Term Liabilities | |||
27,009 | Beg. |
Common Stock | |||
484 | Beg. |
Additional Paid-in Capital | |||
359,728 | Beg. |
Retained Earnings | |||
501,908 | Beg. |
Other Stockholders’ Equity Items | |||
Beg. | 580,433 |
2.
Prepare the T-account for the given balance sheet accounts, and to determine the ending balance of each account.
2.
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:
- (a) The title of the account
- (b) The left or debit side
- (c) The right or credit side
T-accounts for each of the balance sheet accounts are as follows:
Cash and Cash Equivalents | |||
Beg. | 78,519 | ||
(a) | 1,020 | 3,400 | (b) |
(d) | 4,020 | 2,980 | (e) |
(g) | 310 | 1,830 | (f) |
300 | (h) | ||
75,359 |
Short-Term Investments | |||
Beg. | 12,909 | ||
(e) | 2,980 | ||
15,889 |
Accounts Receivable | |||
Beg. | 15,036 | ||
15,036 |
Inventories | |||
Beg. | 141,692 | ||
141,692 |
Prepaid Expenses and Other Current Assets | |||
Beg. | 20,372 | ||
20,372 |
Property, Plant, and Equipment | |||
Beg. | 294,853 | ||
(f) | 11,230 | 4,020 | (d) |
302,063 |
Intangibles | |||
Beg. | 45,128 | ||
(b) | 3,400 | ||
48,528 |
Other Assets | |||
Beg. | 19,816 | ||
310 | (g) | ||
19,506 |
Accounts Payable | |||
26,958 | Beg. | ||
26,958 |
Accrued Expenses Payable | |||
127,639 | Beg. | ||
127,639 |
Dividends Payable | |||
0 | Beg | ||
300 | (h) | ||
300 |
Long-Term Debt | |||
165,032 | Beg. | ||
9,400 | (f) | ||
174,432 |
Other Long-Term Liabilities | |||
27,009 | Beg. | ||
27,009 |
Common Stock | |||
484 | Beg. | ||
16 | (a) | ||
500 |
Additional Paid-in Capital | |||
359,728 | Beg. | ||
1,004 | (a) | ||
360,732 |
Retained Earnings | |||
501,908 | Beg. | ||
(h) | 300 | ||
501,608 |
Other Stockholders’ Equity Items | |||
Beg. | 580,433 | ||
580,433 |
3.
Explain the response for event (c).
3.
Explanation of Solution
Business transaction:
Business transaction is a record of any economic activity, resulting in the change in the value of the assets, the liabilities, and the stockholder’s equities, of a business. Business transaction is also referred to as financial transaction.
In this case, ordered wood and other raw material is not creating any impact on assets, liabilities and stockholder’s equity of the business, because it is not a business transaction.
4.
Prepare the
4.
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 E is as follows:
Company E | ||
Trial Balance | ||
At September 30, 2011 | ||
(in thousands of dollars) | ||
Particulars | Debit ($) | Credit ($) |
Cash and cash equivalents | 75,359 | |
Short-term investments | 15,889 | |
Accounts receivable | 15,036 | |
Inventories | 141,692 | |
Prepaid expenses and other current assets | 20,372 | |
Property, plant, and equipment | 302,063 | |
Intangibles | 48,528 | |
Other assets | 19,506 | |
Accounts payable | 26,958 | |
Accrued expenses payable | 127,639 | |
Long-term debt (current portion, $19) | 174,432 | |
Other long-term liabilities | 27,009 | |
Common stock | 500 | |
Additional paid-in capital | 360,732 | |
501,608 | ||
Other stockholders’ equity items | 580,433 | |
Totals | 1,218,878 | 1,218,878 |
Table (1)
Therefore, the total of debit, and credit columns of trial balance is $1,218,878 and agree.
5.
Prepare a classified balance sheet of Company E at September 30.
5.
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 E on September 30, 2011 is as follows:
Company E | ||
Balance Sheet | ||
At September 30, 2011 | ||
(in thousands of dollars) | ||
Assets | $ | $ |
Current assets | ||
Cash and cash equivalents | 75,359 | |
Short-term investments | 15,889 | |
Accounts receivable | 15,036 | |
Inventories | 141,692 | |
Prepaid expenses and other current assets | 20,372 | |
Total current assets | 268,348 | |
Property, plant, and equipment | 302,063 | |
Intangibles | 48,528 | |
Other assets | 19,506 | |
Total Assets | 638,445 | |
Liabilities and stockholder's equity | ||
Liabilities | ||
Current liabilities | ||
Accounts payable | 26,958 | |
Accrued expenses payable | 127,639 | |
Current portion of long-term debt | 19 | |
Total current liabilities | 154,616 | |
Long-term debt | 174,413 | |
Other long-term liabilities | 27,009 | |
Total Liabilities | 356,038 | |
Stockholders’ Equity | ||
Common stock ($0.01 par value) | 500 | |
Additional paid-in capital | 360,732 | |
Retained earnings | 501,608 | |
Other stockholders’ equity items | (580,433) | |
Total Stockholders’ Equity | 282,407 | |
Total Liabilities and Stockholders’ Equity | 638,445 |
Table (2)
Therefore, the total assets of Company E are $638,445, and the total liabilities and stockholders’ equity is $638,445.
6.
Calculate the
6.
Explanation of Solution
Current Ratio:
A part of
Calculate the current ratio of Company E for 2011 as follows:
Here,
Current assets = $268,348
Current liabilities= $154,616
Therefore, the current ration of Company E is 1.74
Current ratio of Company E has sufficient liquidity, because for every one dollar of current liabilities, Company E has more than one dollar of current assets.
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Chapter 2 Solutions
Financial Accounting, 8th Edition
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