Question

Please answer this question and do steps 1-7. I've already posted this question and they did not complete the answer.

PB2-3    Recording Transactions (in a Journal and T-Accounts); Preparing and Interpreting the Balance

Sheet (LO 2-2, 2-3, 2-4, 2-5 and a little Chapter 1)

Starbuck$ is a coffee company – a big coffee company. During a 10-year period, the number of Starbucks locations grew from 165 to over 8,500 stores in 50 countries. The following is adapted from Starbucks’s annual report for the year ended September 30, 2017, and dollars are reported in millions.

Accounts Payable	$ 4,110		Inventory	$ 1,110
Accounts Receivable	560		Notes Payable	1,660
Cash	2,560		Prepaid Rent	570
Common Stock	350		Retained Earnings	4,140
Equipment	3,220		Salary and Wages Payable	1,270
Intangible Assets	2,850		Short-term Investments	660

Assume the following events occurred in the following quarter, which ended December 31, 2017. Dollars are in millions.

a.Paid $1,000 cash for additional intangible assets.

b.Issued additional shares of common stock for $10,000 in cash.

c.Purchased equipment; paid $4,000 in cash and signed additional long-term loans for $9,500.

d.Paid $800 cash for salaries and wages owed at September 30.

e.Conducted negotiations to purchase a coffee farm, which is expected to cost $8,400.

Required:

1.Analyze transactions (a)-(e) to determine their effects on the accounting equation. Once you have determined the effects on the accounting equation prepare a journal entry (Hint – debits first and credits second). Use the format shown below.

2.Post your journal entries in Part 1 above to the T-Accounts. Use the format shown below.

3.Carryforward account balances from Part 2 to the worksheet for Part 3 – show account balances, indicated account type (i.e. asset, liability, equity, revenue or expense), does the account have a debit or credit balance and which financial statement does this account appear on (i.e. Income Statement, Statement of Retained Earnings or Balance Sheet)?

4.Prepare a Trial Balance at 12/31/2017.

5.Prepare an Income Statement, Statement of Retained Earnings and a classified Balance Sheet.

6.What was the source of the company’s financing – Debt or Equity – show your work?

7.Prepare the Current Ratio and the Quick Ratio (aka Acid Test). Are the ratios good or bad? What standard did you use?

Answer 1

1. Effect on Accounting Equation of transaction from a to e -

Accounting Equation	Assets			=	Liability +		Shareholder equity
Transaction	Cash	Intangible Assets	Equipment		Account Payable	Long term loan	Equity
a)	-1000	1000	0	=	0	0	0
b)	10000	0	0	=	0	0	10000
c)	-4000	0	13500	=	0	9500	0
d)	-800	0	0	=	-800	0	0
e)	0	0	0	=	0	0	0

Journal Entry

1	Intangible assets	Dr.	1000
	To Cash			1000
2	Cash	Dr.	10000
	To Common Equity			10000
3	Equipment	Dr.	13500
	To Cash			4000
	To Long term loan			9500
4	Salaries and wages payable	Dr.	800
	To Cash			800
5	No journal entry required

2. T- Account of above journal entries

Cash
Debit	Credit
Common Equity       10000	Intangible assets    1000
	Equipment                4000
	Salary payable          800

Intangible Assets
Debit	Credit
Cash                                  1000

Common Equity
Debit	Credit
	cash                       10000

Salaries and wages payable
Debit	Credit
Cash                                 800

Long Term Loan
Debit	Credit
	Equipment                9500

Equipment
Debit	Credit
Cash                                  4000
Long Term loan                  9500

4. Trial Balance 31 Dec 2017

Particular	Debit $	Credit $
Accounts Payable	-	4110
Accounts Receivable	560	-
Cash	6,760	-
Common Stock	-	10350
Equipment	16,720	-
Intangible Asset	3850	-
Prepaid Rent	570	-
Retained Earnings	-	4140
Salary and Wages Payable	-	470
Inventory	1110	-
Notes Payable	-	11160
Short-term Investments	660	-
Total	30230	30230

5. Income statement, Classified balance sheet and stat of retianed earning

     

Balance sheet
Assets	Amount	Liability	Amount
Current Assest		Current liability
Cash	6760	Accounts payable	4110
Short term investment	660	Salary payable	470
Acc recievable	560
Inventory	1110
Prepaid Rent	570
Property Plant & Equipment		Long term liability
Equipment	16720	Notes Payable	11160
Intangible Assets	3850	Shareholder's Equity
		Common Stock	10350
		Retained Earning	4140
Total Assets	30230	Total Liability	30230

6. Source of company's financing

   1. Common Stock = 350 $ + 10000 $

                                 = 10350 $

   2. Debt (Note payable) = 1660 $ + 9500 $

                                         = 11160 $

7. Current Ratio = Current assets / Current liability

                            =6760 +660 + 560 + 1110 + 570 / 4110 + 470

                           = 9660 $ / 4580 $

                           = 2.11

Acid Ratio = Cash + A/c Rec. + Short term investment / Current liability

                    = 6760 + 560+ 660 / 4580

                    =7980 / 4580

                  = 1.74

Idle Current ratio which are accepted by bank is 1.33. Current ratio more than 1.5 is considered as company is not effectively utilizing its cash resources. Acid test ratio should be more than at least 1. These are considered as healthy ratio. Starbuck should maintain its Current ratio between 1 - 1.5.

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