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Harry and Ron formed Granger Company on January 1, 2013. Each contributed $200,000 in exchange for...

Harry and Ron formed Granger Company on January 1, 2013. Each contributed $200,000 in exchange for 10,000 shares of Common Stock with a par value of $1. The following are transactions for the month of January, the first month of operations.

Company acquired 400 acres of land in South Dakota at a cost of $500 per acre, paying in full.

Company established a line of credit with Dakota National Bank in the amount of $500,000 using the land as collateral.

Purchased supplies for $3,500 cash

Paid for January’s equipment rental, cash $50,000.

Sold timber from the land for $75,000.

Signed a 1 year lease on a 2,000 sq. ft. office, paying $2,800 for the month.

Sold large rocks to a landscaping customer, receiving half of the $15,000 in cash.

Paid $3,000 for fuel and oil used in the equipment.

Sold excess topsoil to a developer, 20 dump truck loads at $100 per load, cash.

Paid employees for the month, $12,000.

ABC Sign Company installed no trespassing signs and company signage at a cost of $1,500.

Received and paid invoice for insurance premiums for months of January-March, $15,000

Received invoice for 2,300 for fuel and oil used in the equipment.

On the last day of the month purchased 2 pickup trucks from a local dealer for $25,000 each, Dakota National Bank provided the loan with a rate of 2.49%, 12 months.

Signed contract to purchase an additional 250 acres of land at a cost of $600 per acre.

Accounts Listing:

Cash                      Accounts Receivable                                       Prepaid Insurance                            Trucks

Land                      Accounts Payable                                             Line of Credit Payable                    Note Payable

Common Stock Additional Paid in Capital                              Revenue                                              Advertising Exp

Supplies Exp       Equipment Rental Exp                                    Office Lease Exp                               Fuel/Oil Exp

Insurance Exp    Wages Exp

Prepare the Balance Sheet for the month of January, using proper form, calculate current ratio.

Solutions

Expert Solution

Balance Sheet as on 31st January 2013:

Assets Amount($)
Current assets:
Cash 696,700
Prepaid Insurance 10,000
Accounts receivable 7,500
Total current assets 714,200
Non Current Assets:
Land 350,000
Truck 50000
Total Non Current Assets 400,000
Total assets 1,114,200
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable 152,300
Note Payable 50,000
Total current liabilities 202,300
Long term liabilities:
Line of Credit Payable 500,000
Stockholders’ equity:
Common stock(10,000*$1*2) 20,000
Additional Paid in Capital (200000*2-20,000) 380000
Retained earnings (11,900 from net profit) 11,900
Total stockholders’ equity 411,900
Total liabilities and stockholders’ equity 1,114,200

Current Ratio = Current Assets / Current Liability = 714,200/202,300 = 3.53

Workings:

Income Statement:

Particulars Amount($)
Revenue 92,000
Equipment Rental Exp 50,000
Supplies Exp 3500
Wages Exp 12000
Fuel/Oil Exp 5300
Gross profit 21,200
Office Lease Exp 2800
Advertising Exp 1,500
Insurance Exp 5000
Operating Profit 11,900
Interest Exp 0
Net Income before tax 11,900
Tax 0
Net Profit 11,900

Ledger Accounts:

Cash
Particulars Amount(S) Particulars Amount($)
Common Stock 20,000 Land 200,000
Additional Paid in capital 380,000 Supplies Exp 3,500
Line of Credit Payable 500,000 Equipment Rental Exp 50,000
Revenue 75,000 Office Lease Exp 2,800
Revenue 7,500 Fuel/Oil Exp 3,000
Revenue 2,000 Wages Exp 12,000
Advertising Exp 1,500
Insurance Exp (15000*1/3) 5,000
Prepaid Insurance (15000*2/3) 10,000
Balance c/d 696,700
984,500 984,500
Accounts Receivable
Revenue 7,500 Balance c/d 7,500
7,500 7,500
Accounts Payable
Balance c/d 152,300 Fuel/Oil Exp 2,300
Land 150,000
152,300 152,300
Note Payable
Balance c/d 50,000 Truck(25000*2) 50,000
50,000 50,000
Common Stock
Particulars Amount(S) Particulars Amount($)
Balance c/d 400,000 Cash 20,000
400,000 400,000

Revenue = $75,000 (Sold timber) + $15,000 (Sold large rocks) + $2,000 (Sold excess top soil) = $92,000


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