Question

TimmyL Baseball Card Co. buys and sells baseball cards of a famous (ex) San Francisco Giants baseball player. The company was formed in 2015. The post-closing trial balance of that company for the end of operations in that first year is:

TimmyL Baseball Card Co.

Trial Balance

December 31, 2015

Account                                   Debit                       Credit

Cash                                                $250,000

Accounts Receivable                                   80,000

Allowance for Bad Debts                                                $ 8,000

Inventory                                 600,000

Supplies                                     10,000

Prepaid Advertising                                             9,000

Land                                                200,000

Building                                  500,000

Accumulated Depreciation-B.                                            8,000

Patent                                                 95,000

Accounts Payable                                                        100,000

Dividends Payable                                                  30,000

Income Tax Payable                                                        75,000

Interest Payable                                                           3,000

Salaries Payable                                                      20,000

Notes Payable                                                         120,000

Common Stock ($10 par value)                                      100,000

Paid in Capital in Excess of Par                                      900,000

Retained Earnings                                                   380,000

Total                                                $1,744,000              $1,744,000

Accounting Cycle Step 1: The following entries occurred during the second year of operations, 2016. (A) Journalize each below entry, (B) explain how that entry affects total assets, total liabilities and total stockholders’ equity (does it increase, decrease, or is there no effect on each balance sheet subsection?), (C) explain how that entry affects the current ratio (current assets/current liabilities – does that ratio increase, decrease, or is indeterminable?), (D) explain how that entry affects the leverage ratio (total liabilities/total equity – does that ratio increase, decrease or is indeterminable?), and (E) explain how that entry affects the profitability ratio (net income/net sales – does that ratio increase, decrease or is indeterminable?).

1/5 Paid the salaries due from the previous year.

1/30 The beginning inventory of 2016 consists of 10,000 baseball cards at a cost of $60 each. TimmyL sold 5,000 of these cards, on account, at a price of $200 each. TimmyL uses a perpetual inventory system and uses FIFO as a cost flow assumption.

2/1 Paid our suppliers the entire amount owed on the trade accounts payable from the previous year.

2/15 Collected $900,000 in accounts receivable from customers.

3/1 Paid shareholders the dividend declared in 2015.

3/31 Paid the Notes Payable plus all accrued interest. The Notes Payable account consists of a $120,000, 10 percent, 6 month obligation from the bank on 10/1/15.

4/1 Incurred and paid the utilities bill of $10,000.

4/15 Paid the government the taxes due from 2015.

5/1 Purchased on account 3,000 new baseball cards at a cost of $70 each.

5/15 Paid $200,000 of the amount owed on trade accounts payable.

6/1 Purchased $15,000 in supplies for cash and debited a permanent (real) account [instead of a temporary (nominal) account].

6/15 One customer owing $10,000 was declared bankrupt. TimmyL wrote off this account as uncollectable.

7/1 Purchased online advertising for one year at a cost of $2,000 per month for cash and debited a temporary (nominal) account [instead of a real (permanent) account].

7/5 Sold 5,000 new shares of common stock at a market price of $150 per share.

8/1 Lent the CEO of TimmyL $200,000 and accepted an eight month, eight percent note receivable.

8/15 Paid $50,000 salaries.

8/31 Sold 5,000 baseball cards on account at a price of $250 per card.

9/1 Purchased a computer system for $70,000 by making a $10,000 down payment and issuing a six month six per cent note for the balance.

9/15 Sold a quarter of the land owned by TimmyL for a cash price of $300,000.

10/1 Received $1,200,000 due from customers.

11/1 Received $100,000 in advance from a customer for the future sale of an extra special baseball card that TimmyL will acquire in 2017. TimmyL credited a permanent (real) account [instead of a temporary (nominal) account].

12/15 Declared an annual cash dividend of $5 per common share to shareholders payable in ninety days.

Answer 1

TimmyL Baseball Card Company
Journal entries for the year ending December 31, 2016
Date	Account title	Debit	Credit		Effect on Assets, Liabilities and Stock holders' equity	Effect on Current ratio	Effect on leverage ratio
1/5/2016	Salaries payable	20000			Decrease in current assets	No effect	Decrease
	Cash		20000		Decrease in current liabilities
1/30/2016	Accounts receivable	1000000			Increase in current assets	Increase	Decrease
	Sales Revenue		1000000		Increase in stockholders' equity
	Cost of goods sold	300000
	Inventory		300000
2/1/2016	Accounts payable	100000			Decrease in current assets	No effect	Decrease
	Cash		100000		Decrease in current liabilities
2/15/2016	Cash	900000			No effect	No effect	No effect
	Accounts receivable		900000
3/1/2016	Dividend payable	30000			Decrease in current assets	No effect	No effect
	Cash		30000		Decrease in current liabilities
4/1/2016	Utilities expense	10000			Decrease in current assets	Decrease	Decrease
	Cash		10000		Decrease in stockholders' equity
4/15/2016	Income tax payable	75000			Decrease in current assets	No effect	Decrease
	Cash		75000		Decrease in current liabilities
5/1/2016	Inventory	210000			Increase in current assets	No effect	Increase
	Accounts payable		210000		Increase in current liabilities
5/15/2016	Accounts payable	200000			Decrease in current assets	No effect	Decrease
	Cash		200000		Decrease in current liabilities
6/1/2016	Supplies	15000			No effect	No effect	No effect
	Cash		15000
6/15/2016	Allowance for bad debts	10000			No effect	No effect	No effect
	Accounts receivable		10000
7/1/2016	Prepaid advertising	24000			No effect	No effect	No effect
	Cash		24000
7/5/2016	Cash	750000			Increase in current assets	Increase	Decrease
	Common stock		50000		Increase in stockholders' equity
	Additional paid-in-capital		700000
8/1/2016	Note receivable	200000			No effect	No effect	No effect
	Cash		200000
8/15/2016	Salaries expense	50000			Decrease in current asset	Decrease	Increase
	Cash		50000		Decrease in stockholders' equity
8/31/2016	Accounts receivable	1250000			Increase in current assets	Increase	Decrease
	Sales Revenue		1250000		Increase in stockholders' equity
	Cost of goods sold	300000
	Inventory		300000
9/1/2016	Equipment	70000			Increase in fixed asset	Decrease	Increase
	Cash		10000		Decrease in current asset
	Note payable		60000		Increase in current liability
9/15/2016	Cash	300000			Increase in current assets	Increase	Decrease
	Land		50000		Decrease in fixed assets
	Gain on sale of land		250000		Increase in stockholders' equity
10/1/2016	Cash	1200000			No effect	No effect	No effect
	Accounts receivable		1200000
11/1/2016	Cash	100000			Increase in current assets	No effect	Increase
	Unearned revenue		100000		Increase in current liability
12/15/2016	Retained earnings	75000			Increase in current liability	Decrease	No effect
	Dividend payable		75000		Decrease in stockholders' equity