In: Accounting
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?
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