FINANCIAL ACCOUNTING (LL)-W/CONNECT
FINANCIAL ACCOUNTING (LL)-W/CONNECT
10th Edition
ISBN: 9781260696295
Author: Libby
Publisher: MCG
Question
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Chapter 2, Problem 16E

1.

To determine

Prepare T-accounts of Company S.

1.

Expert Solution
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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.

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, 2018.

2.

Expert Solution
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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, 2018
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
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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, 2018
 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 2018, 2019 and 2020, and also suggest about the company.

4.

Expert Solution
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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
20182.44 (1)
20192.26 (2)
20201.18 (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 1:

Calculate current ratio for 2018

Current ratio=Current assetsCurrent liabilities= $39,000$16,000=2.44

Working note 2:

Calculate current ratio for 2019

Current ratio=Current assetsCurrent liabilities= $52,000$23,000=2.26

Working note 3:

Calculate current ratio for 2020

Current ratio=Current assetsCurrent liabilities= $47,000$40,000=1.18

5.

To determine

Describe the recommendation about lending money to Company S.

5.

Expert Solution
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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.

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Chapter 2 Solutions

FINANCIAL ACCOUNTING (LL)-W/CONNECT

Ch. 2 - 11. What is a journal entry? Ch. 2 - 12. What is a T-account? What is its purpose? Ch. 2 - 13. How is the current ratio computed and...Ch. 2 - Prob. 14QCh. 2 - 1. If a publicly traded company is trying to...Ch. 2 - Prob. 2MCQCh. 2 - 3. Total liabilities on a balance sheet at the end...Ch. 2 - 4. The dual effects concept can best be described...Ch. 2 - 5. The T-account is a tool commonly used for...Ch. 2 - Prob. 6MCQCh. 2 - 7. The Cash T-account has a beginning balance of...Ch. 2 - 8. Which of the following statements are true...Ch. 2 - Prob. 9MCQCh. 2 - Prob. 10MCQCh. 2 - Prob. 1MECh. 2 - Matching Definitions with Terms Match each...Ch. 2 - M2-3 Identifying Events as Accounting...Ch. 2 - Classifying Accounts on a Balance Sheet The...Ch. 2 - Determining Financial Statement Effects of Several...Ch. 2 - Prob. 6MECh. 2 - Prob. 7MECh. 2 - Recording Simple Transactions For each transaction...Ch. 2 - Completing T-Accounts For each transaction in M2-5...Ch. 2 - Preparing a Trial Balance Complete M2-9 and then...Ch. 2 - Prob. 11MECh. 2 - Prob. 12MECh. 2 - Prob. 13MECh. 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 - Nike, Inc., with headquarters in Beaverton,...Ch. 2 - Refer to E2-4. Required: For each of the events...Ch. 2 - Prob. 7ECh. 2 - Recording Investing and Financing...Ch. 2 - Analyzing the Effects of Transactions in...Ch. 2 - Prob. 10ECh. 2 - Inferring Investing and Financing Transactions and...Ch. 2 - Inferring Investing and Financing Transactions and...Ch. 2 - Jameson Corporation was organized on May 1. The...Ch. 2 - Prob. 14ECh. 2 - Prob. 15ECh. 2 - Prob. 16ECh. 2 - Waldman Furniture Repair Service, a company with...Ch. 2 - Inferring Typical Investing and Financing...Ch. 2 - Prob. 19ECh. 2 - Prob. 20ECh. 2 - Prob. 21ECh. 2 - Prob. 1PCh. 2 - Prob. 2PCh. 2 - Prob. 3PCh. 2 - Required: Using events (a) through (i) in P2-3,...Ch. 2 - Prob. 5PCh. 2 - Refer to P2-5. Required: For each of the...Ch. 2 - Identifying Accounts on a Classified Balance Sheet...Ch. 2 - Russeck Incorporated is a small manufacturing...Ch. 2 - Prob. 3APCh. 2 - Required: Using the events (a) through (h) in...Ch. 2 - Prob. 1CONCh. 2 - Refer to the financial statements of American...Ch. 2 - Prob. 2CPCh. 2 - Refer to the financial statements of American...Ch. 2 - Prob. 4CPCh. 2 - Prob. 5CPCh. 2 - Prob. 6CPCh. 2 - Your best friend from home writes you a letter...Ch. 2 - Prob. 8CP
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