MBA 6014 Financial Statements and T accounts.XLSX

MBA 6014 Financial Statements and T accounts

Problem 2: Using T-Accounts, Preparing the Balance Sheet, and Computing and Interpreting the Current Ratio

To complete this problem, you may wish to use the T-Account Transactions Template, which is linked in the Resources under the Capella Resources heading.

Johnson Company has been operating for several years. At December 31, 2012, the accounting records reflected the following data, shown in the table below:

Johnson Company Financial Data

During the year 2013, Johnson Company had the following summarized activities:

  1. Purchased short-term investments for $10,000 cash.

  2. Lent $8,000 to a supplier who signed a three-year note.

  3. Purchased equipment that cost $28,000; paid $4,000 cash and signed a one-year note for the balance.

  4. Hired a new president at the end of the year. The contract was for $110,000 per year plus options to purchase company stock at a set price based on company performance.

  5. Issued an additional 1,000 shares of capital stock for $12,000 cash.

  6. Borrowed $20,000 cash from a local bank, payable in three months.

  7. Purchased a patent (an intangible asset) for $4,000 cash.

  8. Built an addition to the factory for $45,000; paid $10,000 in cash and signed a three-year note for the balance.

  9. Returned defective equipment to the manufacturer, receiving a cash refund of $1,000.

Using knowledge from prior courses, work experience, textbooks, or Internet sources, as well as the financial data provided above, complete the following five items:

  1. Create T-accounts for each of the accounts on a balance sheet and enter the balances at the end of 2012 as beginning balances for 2013. Prepare a trial balance for 12/31/12.

  2. Record each of the events for 2013 in T-accounts and determine the ending balances. For each recording (posting), include the identifying letter (a through i). Prepare a trial balance for 12/31/12.

  3. Explain why you did or did not record item d, the hiring of the president, in a T-account.

  4. Prepare a balance sheet at December 31, 2013. Classify the balance sheet as appropriate (into current assets, fixed assets, and so on).

  5. Compute the current ratio for 2013. Interpret this ratio as it applies to Johnson Company at December 31, 2013, as compared to December 31, 2012.

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