Textbook: Financial Accounting - Libby, Libby, and Short
Cougar Plastics company has been operating for 3 years. At December 31, 2011, the accounting records reflected the following:
Investments (short-term) $2,000
Accounts receivable $3,000
Notes receivable $1,000
Factory building $90,000
Accounts payable $15,000
Accrued liabilities payable $2,000
Notes payable (short term) $7,000
Long term notes payable $46,000
Contributed capital $90,000
Retained earnings $30,000
During the year 2012, the company had the following summarized activities:
A. Purchased short term investments for $9,000 cash.
B. Lent $7,000 to a supplier who signed a 2 year note.
C. Purchased equipment that cost $18,000; paid $6,000 cash and signed a one year note for the balance.
D. 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 the company performance.
E. Issued an additional 2,000 shares of capital stock for $12,000 cash.
F. Borrowed $12,000 cash from a local bank, payable in 3 months.
G. Purchased a patent (An intangible asset) for $3,000 cash.
H. Built an addition to the factory for $25,000; paid $9,000 in cash and signed a 3 year note for the balance.
I. Returned defective equipment to the manufacturer, receiving a cash refund of $1,000.
1. Create T-accounts for each of the accounts on the balance sheet and enter the balances at the end of 2011 as beginning balances for 2012.
2. Record each of the events for 2012 in T-accounts (Including referencing) and determine the ending balances.
3. Explain your response to D.
4. Prepare a classified balance sheet at December 31, 2012.
5. Compute the current ratio for 2012. What does this suggest about Cougar Plastics?
This solution illustrates how to create T-accounts for each of the accounts on the balance sheet, enter the beginning balances, record each of the events in T-accounts (including referencing) and determine the ending balances, prepare a classified balance sheet, and compute the current ratio.