Question

Tallcrest discounted a $50,000, 45-day, 5% note receivable on August 10 at the local bank, which applies an 8% discount rate. Tallcrest had held the note for 25 days before discounting it. Record the entry on August 10.

These financial statement items are for Fairview Corporation at year-end, July 31, 2017. Salaries and wages payable ................................... $ 2,080 Salaries and wages expense ................................... 57,500 Supplies expense ............................................... 15,600 Equipment ...................................................... 18,500 Accounts payable ............................................. 4,100 Service revenue ................................................ 66,100 Rent revenue ................................................... 8,500 Notes payable (due in 2020) ................................. 1,800 Common stock ................................................ 16,000 Cash ............................................................ 29,200 Accounts receivable .......................................... 9,780 Accumulated depreciation-equipment ................... 6,000 Dividends ..................................................... 4,000 Depreciation expense ....................................... 4,000 Retained earnings (beginning of the year) ................. 34,000 Instructions (a) Prepare an income statement and a retained earnings statement for the year. Fairview Corporation did not issue any new stock during the year. (b) Prepare a classified balance sheet at July 31. (c) Compute the current ratio and debt to assets ratio. (d) Suppose that you are the presid

Answer 1

Entry for bills discounted by Tallcrest

Bank a/c (50000-274) Dr 49726

Discount a/c (50000*8%*25/365) Dr 274

To Bills Receivable 50000

(Being Bills dicounted with the bank at discount rate of 8%)

a)	Income Statement for the year ended 31st July, 2017
	Expenses	$	Income	$
	To, Salaries and Wages	57500	By, Service Revenue	66100
	To, Supplies Expense	15600	By, Rent Revenue	8500
	To, Depreciation	4000	By, Common Stock	32000
	By, Retained Earnings (Loss Cariied Forward)	29500
		106600		106600
	Retained Earnings Statement
	Particulars	$
	Retained Earnings at the beginning of the year	34000
	Add: Loss for the year	29500
	Less: Dividend	4000
	Retained Earnings at the end of the year	59500
c)	Balance Sheet as on 31st July, 2017
	Liabilities	$	Assets	$
	Shareholders Funds		Fixed Assets
	Retained Earnings		Equipments	18500
	From a)	59500
	Long Term Provisions		Current Assets
	Accumulated Depreciation- Equipment	6000	Common Stock	16000
			Cash	29200
	Current Liabilities		Accounts Receivable	9780
	Outstanding Expenses
	Wages Payable	2080
	Accounts Payable	4100
	Notes Payable	1800
		73480		73480

c)	Current Ratio	Current Assets/Current Liabilities
	Current Assets
	Common Stock	16000
	Cash	29200
	Accounts Receivables	9780
		54980
	Current Liabilities
	Wages Payable	2080
	Accounts Payable	4100
	Notes Payable	1800
		7980
	So,
	Current Ratio equals	54980/7980
	Which = 6.89