Question

In: Accounting

Selected balance sheet accounts for Tibbetts Company on September 30, 2016, are as follows: Cash $...

Selected balance sheet accounts for Tibbetts Company on September 30, 2016, are as follows:
Cash $ 44,800
Marketable securities 126,000
Accounts receivable, net 154,000
Inventory 175,000
Prepaid expenses 19,600
Total current assets $ 519,400
Accounts payable $ 108,000
Other accrued liabilities 26,400
Short-term debt 48,000
Total current liabilities $ 182,400
Required:
a. Calculate the working capital, current ratio, and acid-test ratio for Tibbetts Company as of September 30, 2016. (Round "Ratio" answers to 2 decimal places.)

b. Summarized here are the transactions/events that took place during the fiscal year ended September 30, 2017.
Credit sales for the year amounted to $336,000. The cost of goods sold was $218,400.
Collected accounts receivable, $352,800.
Purchased inventory on account, $235,200.
Issued 700 shares of common stock for $25 per share.
Wrote off $9,800 of uncollectible accounts using the allowance for bad debts.
Declared and paid a cash dividend, $28,000.
Sold marketable securities costing $36,400 for $43,400 in cash.
Recorded insurance expense for the year, $16,800. The premium for the policy was paid in June 2016.
Borrowed cash on a short-term bank loan, $14,000.
Repaid principal of $56,000 and interest of $4,200 on a long-term bank loan.
b-1. Prepare journal entries for the above transactions. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Solutions

Expert Solution

a. Working capital = Current assets - Current liabilities = $519400 - $182400 = $337000

Current ratio = Current assets/Current liabilities = $519400/$182400 = 2.85

Acid-test ratio = Quick assets/Current liabilities = ($44800 + $126000 + $154000)/$182400 = $324800/$182400 = 1.78

b-1.

No. Accounts and Explanations Debit Credit
1(a) Accounts receivable 336000
Sales revenue 336000
(To record credit sales)
1(b) Cost of goods sold 218400
Inventory 218400
(To record the cost of sales)
2 Cash 352800
Accounts receivable 352800
(To record collection on account)
3 Inventory 235200
Accounts payable 235200
(To record inventory purchased on account)
4 Cash 17500
Common stock (700 x $25) 17500
(To record common stock issued)
5 Allowance for bad debts 9800
Accounts receivable 9800
(To record write-off of uncollectible accounts)
6 Dividends 28000
Cash 28000
(To record cash dividend declared and paid)
7 Cash 43400
Marketable securities 36400
Realized gain on sale 7000
(To record sale of marketable securities)
8 Insurance expense 16800
Prepaid expenses 16800
(To record insurance expense)
9 Cash 14000
Short-term debt 14000
(To record short-term bank loan taken)
10 Long-term debt 56000
Interest expense 4200
Cash 60200
(To record repayment of long-term bank loan)

ekkarill92 answered 1 year ago
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