Question

In: Accounting

[The following information applies to the questions displayed below.] Cougar Plastics Company has been operating for...

[The following information applies to the questions displayed below.]

Cougar Plastics Company has been operating for three years. At December 31 of last year the accounting records reflected the following:

Cash $ 22,000 Accounts payable $ 15,000
Investments (short-term) 3,000 Accrued liabilities payable 4,000
Accounts receivable 3,000 Notes payable (short-term) 7,000
Inventory 20,000 Notes payable (long-term) 47,000
Notes receivable (long-term) 1,000 Common stock 10,000
Equipment 50,000 Additional paid-in capital 80,000
Factory building 90,000 Retained earnings 31,000
Intangibles 5,000


During the current year, the company had the following summarized activities:

  1. Purchased short-term investments for $10,000 cash.
  2. Lent $5,000 to a supplier who signed a two-year note.
  3. Purchased equipment that cost $18,000; paid $5,000 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 $85,000 per year plus options to purchase company stock at a set price based on company performance.
  5. Issued an additional 2,000 shares of $0.50 par value common stock for $11,000 cash.
  6. Borrowed $9,000 cash from a local bank, payable in three months.
  7. Purchased a patent (an intangible asset) for $3,000 cash.
  8. Built an addition to the factory for $24,000; paid $8,000 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.
Required:

1. & 2.

Post the current year transactions to T-accounts for each of the accounts on the balance sheet. (Two items have been given in the cash T-account as examples).


            

4. Prepare a trial balance at December 31 of the current year.

5. Prepare a classified balance sheet at December 31 of the current year.

6.

Compute the current ratio for the current year. (Round your answer to 2 decimal places.)

Solutions

Expert Solution

T-ACCOUNTS
NOTE:No accounting entry is required for hiring
Cash $23,000
Description Debit Credit
Beginning Balance $22,000
Short term investment $10,000
Notes Receivable $5,000
Equipment $5,000
Issue of commonstock $22,000 (11*2000)
Notes payable(short term) $9,000
Intangible asset $3,000
Factory building $8,000
Equipment $1,000
Closing Balance $23,000
Investment (Short term) $13,000
Description Debit Credit
Beginning Balance $3,000
Cash $10,000
Closing Balance $13,000
Accounts Receivable $3,000
Description Debit Credit
Beginning Balance $3,000
Closing Balance $3,000
Inventory $20,000
Description Debit Credit
Beginning Balance $20,000
Closing Balance $20,000
Notes Receivable (Long term) $6,000
Description Debit Credit
Beginning Balance $1,000
Cash $5,000
Closing Balance $6,000
Equipment $67,000
Description Debit Credit
Beginning Balance $50,000
Purchase $18,000
Return of defective equipment $1,000
Closing Balance $67,000
Factory Building $114,000
Description Debit Credit
Beginning Balance $90,000
Addition built $24,000
Closing Balance $114,000
Intangibles $8,000
Description Debit Credit
Beginning Balance $5,000
Cash $3,000
Closing Balance $8,000


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