Question

In: Accounting

Instructions As you recall, you have started a business, Main Squeeze, that will sell lemonade. You...

Instructions
As you recall, you have started a business, Main Squeeze, that will sell lemonade. You have decided to incorporate the company for legal liability and taxation reasons.

The following are some of Main Squeeze’s transactions that occurred in April;

a. You put $3,000 cash into the company and signed over your car (with a value of $5,000). In exchange the company issued 8,000 shares to you.
b. Purchased a lemonade stand/trailer paying $600 cash on signing and financing the remainder with a loan over 5 years. The stands purchase price is $6,000.
c. Entered into a 5-year seasonal lease for prime boardwalk space with the city of saint john. Payments are $500 monthly from May to September.
d. Purchased a new juicer machine for $1,500 cash, and a water filtration system for $800 signing a short term note payable due in 4 months,
e. Ordered $500 worth of inventory of (lemons, sugar and cups) to be received May 3.
f. Hired a part-time employee for $1,500 per month who will start in May.

1.For each of the events, prepare journal entries if a transaction of the business exists, checking that credits equal debits. If a transaction does not exist, explain why there is no transaction for the business.
2.Create T-accounts, and post each of the transactions to determine balances at April 30th. Because this is a new business, beginning balances are $0
3.Prepare a trial balance, prepare a classified statement of financial position (with current assets and current liabilities sections) at April 30th (before beginning operations in May)
4.For each of the events, indicate if it is an investing activity (I) or financing activity (F) and the direction (+ for increases and – for decreases) and the amount of the effect on the cash flows using the following structure. Write NE if there is no effect on Cash flows.
5.Calculate the current ratio at April 30th. What does this ratio indicate about the ability of Main Squeeze to pay its current liabilities?

Solutions

Expert Solution

Particulars Debit Credit
a Cash 3000
Vehicle 5000
Common Stock 8000
b Equipment 6000
Cash 600
Long Term Loan 5400
c Enteing into a 5-year seasonal lease for prime boardwalk space with the city of saint john is an operating lease and future rent payments are not included in the balance sheet
d Equipment 1500
Cash 1500
d Equipment 800
Notes Payable 800
e Since it is an order and lemons sugars and cups have not yet been delivered in April , no Entry
f Part time employee will start his services in May , no need for entry in this month as the liabilty will occur in the follwing month
Vehicle
Common Stock 5000 balance carried forward 5000
Common Stock
balance carried forward 8000 Vehilce 5000
Cash 3000
Cash
Common Stock 3000 Equipment 600
Equipment 1500
balance carried forward 900
Equipment
Cash 1500 balance carried forward 8300
Cash 600
Long Term Loan 5400
Notes Payable 800
Long Term Loan
balance carried forward 5400 Equipment 5400
Notes Payable
balance carried forward 800 Equipment 800
Trial Balance Amount Amount
Common Stock 8000
Vehilce 5000
Cash 900
Equipment 8300
Long Term Loan 5400
Notes Payable 800
14200 14200
Assets Liabilites
Current Assets Current Liabiltes
Cash                900 Notes Payable 800
Property Plant and Equipemnt Long Term Liabiltes
Vehicle 5000 Long Term Loan 5400
Equipment 8300
Stockholder Equity
Common Stock 8000
Total Assets 14200 Total Liabiltes 14200
Event Activity Increase /Decrease
You put $3,000 cash into the company and signed over your car (with a value of $5,000). In exchange the company issued 8,000 shares to you. Financing Increse by 3000
Purchased a lemonade stand/trailer paying $600 cash on signing and financing the remainder with a loan over 5 years. The stands purchase price is $6,000. Investing Decrese by 600
Entered into a 5-year seasonal lease for prime boardwalk space with the city of saint john. Payments are $500 monthly from May to September. NE
Purchased a new juicer machine for $1,500 cash, and a water filtration system for $800 signing a short term note payable due in 4 months, Investing Decrese by 1500
Ordered $500 worth of inventory of (lemons, sugar and cups) to be received May 3. NE
Hired a part-time employee for $1,500 per month who will start in May. NE
Current Ratio
Current Assets 900
Current Liabilites 800
1.125

As per the current ratio , the company os capable of paying its current liabiltes


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