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    Accounting - Plastics Company, Pete's Pest Control

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    Week 2 practice Text Assignments

    1. Define the following:
    a. Asset d. Current liability
    b. Current asset e. Contributed capital
    c. Liability f. Retained earnings

    2. What is the basic accounting equation?

    3. Explain what debit and credit mean.

    4. CP2-2 Recording Transactions (in a Journal and T-Accounts), Preparing and Interpreting the Balance Sheet
    Patrie Plastics Company (PPC) has been operating for three years. The December 31, 2005,
    account balances are:

    Cash $ 35,000 Other assets $ 5,000
    Accounts receivable 5,000 Accounts payable 37,000
    Inventory 40,000 Notes payable (due 2008) 80,000
    Notes receivable 2,000 Contributed capital 150,000
    Equipment 80,000 Retained earnings 50,000
    Factory building 150,000

    During the year 2006, the company had the following summarized activities:

    a. Purchased equipment that cost $30,000; paid $10,000 cash and signed a two-year note for the
    b. Issued an additional 2,000 shares of stock for $20,000 cash.
    c. Lent $12,000 to a supplier who signed a six-month note.
    d. Borrowed $20,000 cash from a local bank, payable June 30, 2008.
    e. Purchased an "other asset" for $6,000 cash.
    f. Built an addition to the factory for $42,000; paid $15,000 in cash and signed a three-year note
    for the balance.
    g. Hired a new president on the last day of the year. The contract was for $85,000 for each full
    year worked.
    h. Returned $2,000 of defective equipment to the manufacturer, receiving a cash refund.


    1. Prepare journal entries to record transactions a-h.
    2. Create T-accounts for each of the accounts on the balance sheet and enter the balances at the
    end of 2005 as beginning balances on January 1, 2006.
    3. Enter the effects of the transactions in T-accounts (including referencing) and determine the
    December 31, 2006, balances.
    4. Explain your response to event g.
    5. Prepare a classified balance sheet at December 31, 2006.
    6. As of December 31, 2006, has the financing for PPC's investment in assets primarily come
    from liabilities or stockholders' equity?

    5. EXERCISE 1-12B Effect of Transactions on General Ledger Accounts

    At the beginning of 2001, Pete's Pest Control's accounting records had the following general ledger accounts
    and balances.

    Pets's Pest Control
    Accounting Equation
    Event Assets = Liabilities + Stockholders' Equity Acct. Titles for RE
    CASH LAND Notes Payable Common Stock / Retained Earning
    1/1/2001 15,000 20,000 15,000 7,000 13,000

    Pete's completed the following transactions during 2001.
    1. Purchased land for $5,000 cash.
    2. Acquired $25,000 cash from the issue of common stock.
    3. Received $65,000 cash for providing services to customers.
    4. Paid cash operating expenses of $42,000.
    5. Borrowed $10,000 cash from the bank.
    6. Paid a $2,500 cash dividend to the stockholders.
    7. Determined that the market value of the land is $30,000.


    a. Record the transactions in the appropriate general ledger accounts. Record the amounts of revenue,
    expense, and dividends in the Retained Earnings column. Provide the appropriate titles for these accounts
    in the last column of the table.
    b. Determine the net cash flow from financing activities.
    c. What is the balance in the Retained Earnings Accounts as of January 1, 2002?

    Accounting Equation
    Acct. Titles
    Event Assets _ Liabilities _ Stockholders' Equity for RE
    Notes Common Retained
    Cash Land Payable Stock Earnings

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    Solution Preview

    Please see the response attached in the WORD file. I have also attached an EXCEL file with some more calculations. I have done my best to answer your questions to the best of my ability. I hope you find the response excellent.

    Week 2 practice Text Assignments

    1. Define the following:
    a. Asset d. Current liability
    b. Current asset e. Contributed capital
    c. Liability f. Retained earnings

    Assets: Assets are everything of value that is owned by a person or company. The balance sheet of a firm records the monetary value of the assets owned by the firm. The two major asset classes are tangible assets and intangible assets.

    Current Assets: A current asset is an asset on the balance sheet which is expected to be sold or otherwise used up in the near future, usually within one year, or one business cycle - whichever is longer. Typical current assets include cash, cash equivalents, accounts receivable, inventory, the portion of prepaid accounts which will be used within a year, and short-term investments.

    Liability: A liability is defined as an obligation of an entity arising from past transactions or events, the settlement of which may result in the transfer or use of assets, provision of services or other yielding of economic benefits in the future.

    Current Liability: Current liabilities are considered liabilities of the business that are to be settled in cash within the fiscal year or the operating cycle, whichever period is longer.

    Contributed Capital: Paid in capital, also called contributed capital, refers to the capital contributed to a corporation by investors on top of the par value of capital stock: In other words, the money that a company gets from potential investors in addition to the stated value of the stock.

    Retained Earnings: Retained earnings refer to the portion of net income which is retained by the corporation rather than distributed to its owners as dividends.

    2. What is the basic accounting equation?

    The basic accounting equation is:
    Assets = Liabilities + Stockholder's Equity

    3. Explain what debit and credit mean.

    In a financial ...

    Solution Summary

    The solution goes into a great amount of detail about the questions being asked. The responses are excellent and very well written. Overall, a great response.