1.
Record the
1.
Explanation of Solution
Journal:
Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system.
Journal entries of Incorporation A are as follows:
Cash borrowed from banks:
Date | Accounts title and explanation | Ref. | Debit ($) | Credit ($) |
Cash (+A) | 18,266 | |||
Notes payable (+L) | 18,266 | |||
(To record cash borrowed from bank) |
Table (1)
Purchase of additional investment:
Date | Accounts title and explanation | Ref. | Debit ($) | Credit ($) |
Long-term investment (+A) (1) | 4,200 | |||
Short-term investment (+A) (2) | 16,800 | |||
Cash (-A) | 21,000 | |||
(To record purchase of investment) |
Table (2)
Working note:
Calculate the value of long-term investment
Calculate the value of short-term investment
Property, plant and equipment purchased on account and in cash:
Date | Accounts title and explanation | Ref. | Debit ($) | Credit ($) |
Buildings (+A) | 10,981 | |||
Cash (-A) | 9,571 | |||
Short-term notes payable (+L) | 1,410 | |||
(To record purchase of property, plant and equipment on account and in cash) |
Table (3)
Issuance of common stock:
Date | Accounts title and explanation | Ref. | Debit ($) | Credit ($) |
Cash (+A) | 1,469 | |||
Common stock (+SE) | 1 | |||
Additional paid-in capital (+SE) | 1,468 | |||
(To record the issuance of common stock) |
Table (4)
Cash paid to invest short-term investment:
Date | Accounts title and explanation | Ref. | Debit ($) | Credit ($) |
Short-term investment (+A) | 18,810 | |||
Cash (-A) | 18,810 | |||
(To record cash paid to short-term investment) |
Table (5)
Declared cash dividends:
Date | Accounts title and explanation | Ref. | Debit ($) | Credit ($) |
11,126 | ||||
Dividends payable (+L) | 11,126 | |||
(To record dividends declared to the investors) |
Table (6)
2.
Prepare T-accounts for the given accounts.
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,
T-accounts for the given accounts are as follows:
Cash | |||
Beg. | 13,844 | ||
(a) | 18,266 | 21,000 | (b) |
(d) | 1,469 | 9,571 | (c) |
(e) | 18,810 | ||
21,818 |
Short-Term Investments | |||
Beg. | 11,233 | ||
(b) | 16,800 | 18,810 | (e) |
9,223 |
Beg. | 17,460 | ||
17,460 |
Inventories | |||
Beg. | 2,111 | ||
2,111 |
Other Current Assets | |||
Beg. | 23,883 | ||
23,883 |
Long-term investments | |||
Beg. | 130,162 | ||
(b) | 4,200 | ||
134,362 |
Property, Plant, and Equipment | |||
Beg. | 20,624 | ||
(c) | 10,981 | ||
31,605 |
Other Non-current Assets | |||
Beg. | 12,522 | ||
12,522 |
Accounts Payable | |||
30,196 | Beg. | ||
30,196 |
Accrued Expenses | |||
18,453 | Beg. | ||
18,453 |
Unearned Revenue | |||
8,491 | Beg. | ||
8,491 |
Short-term Notes Payable | |||
6,308 | |||
1,410 | (c) | ||
7,718 |
Dividends Payable | |||
0 | Beg. | ||
11,126 | (f) | ||
11,126 |
Long-term Debt | |||
28,987 | Beg. | ||
18,266 | (a) | ||
47,253 |
Other Non-current Liabilities | |||
27,857 | Beg. | ||
27,857 |
Common Stock | |||
1 | Beg | ||
1 | (d) | ||
2 |
Additional Paid-in Capital | |||
23,312 | Beg. | ||
1,468 | (d) | ||
24,780 |
Retained Earnings | |||
88,234 | Beg. | ||
(f) | 11,126 | ||
77,108 |
3.
Prepare
3.
Explanation of Solution
Prepare Trial balance of Incorporation A as shown below:
Incorporation A | ||
Trial Balance | ||
For the Year Ended September 29, 2018 | ||
(in millions) | ||
Particulars | Debit | Credit |
Cash | 28,263 | |
Short-term Investments | 51,882 | |
Accounts receivable | 17,874 | |
Inventories | 4,855 | |
Other current assets | 31,735 | |
Long-term investments | 198,914 | |
Property, plant, and equipment | 44,764 | |
Other noncurrent assets | 18,177 | |
Accounts payable | 49,049 | |
Accrued expenses | 25,744 | |
Unearned revenue | 7,548 | |
Short-term notes payable | 19,883 | |
Dividends payable | 11,126 | |
Long-term debt | 115,473 | |
Other noncurrent liabilities | 43,251 | |
Common stock | 2 | |
Additional paid-in capital | 37,334 | |
Retained earnings | 87,054 | |
Totals | 396,464 | 396,464 |
Table (7)
4.
Prepare the
4.
Explanation of Solution
Balance Sheet:
Balance Sheet summarizes the assets, the liabilities, and the Stockholder’s equity of a Incorporation At a given date. It is also known as the statement of financial status of the business.
Balance sheet of Incorporation A is as follows:
Incorporation A | ||
Balance sheet | ||
at September 26, 2018 | ||
(in millions) | ||
Assets | $ (in millions) | $ (in million) |
Current Assets: | ||
Cash | 21,818 | |
Short-term investments | 9,223 | |
Accounts receivable | 17,460 | |
Inventories | 2,111 | |
Other current assets | 23,883 | |
Total current assets | 74,495 | |
Long-term investments | 134,362 | |
Property, plant and equipment | 31,605 | |
Other noncurrent assets | 12,522 | |
Total assets | 252,984 | |
Liabilities and Stockholders’ Equity | ||
Current Liabilities: | ||
Accounts payable | 30,196 | |
Accrued expenses | 18,453 | |
Unearned revenue | 8,491 | |
Dividends payable | 11,126 | |
Short-term notes payable | 7,718 | |
Total current liabilities | 75,984 | |
Long-term debt | 47,253 | |
Other noncurrent liabilities | 27,857 | |
Total liabilities | 151,094 | |
Stockholders’ Equity: | ||
Common stock | 2 | |
Additional paid-in capital | 24,780 | |
Retained earnings | 77,108 | |
Total stockholders’ equity | 101,890 | |
Total liabilities and stockholders’ equity | 252,984 |
Table (8)
Therefore, the total assets of Incorporation A are $252,984, and the total liabilities and stockholders’ equity is $252,984.
5.
Calculate the
5.
Explanation of Solution
Current Ratio:
A part of
Calculate the current ratio of Incorporation A as follows:
Therefore, the current ration of Incorporation A is 0.98
Current ratio of Incorporation A has relatively low liquidity, because for every one dollar of current liabilities, Company C has less than one dollar of current assets.
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