Solution to Problem 2-3A (Page no.

95)
1. Classified balance sheet:
SINGER COMPANY
BALANCE SHEET
DECEMBER 31, 2014
Assets
Current assets:
Cash.............................................................................. $ 60,790
Marketable securities.................................................... 15,000
Accounts receivable...................................................... 26,700
Merchandise inventory.................................................. 112,900
Prepaid rent................................................................... 3,600
Office supplies............................................................... 400
Total current assets............................................................ $219,390
Property, plant, and equipment:
Land............................................................................... $250,000
Buildings.................................................. $150,000
Less: Accumulated depreciation....... 40,000 110,000
Equipment................................................ $ 84,500
Less: Accumulated depreciation....... 12,500 72,000
Total property, plant, and equipment.................................. 432,000
Intangible assets:
Patents.......................................................................... 45,000
Total assets......................................................................... $696,390
Liabilities
Current liabilities:
Accounts payable.......................................................... $ 34,280
Income taxes payable................................................... 7,500
Interest payable............................................................. 2,200
Notes payable, due April 15, 2013................................ 6,500
Salaries payable............................................................ 7,400
Total current liabilities......................................................... $ 57,880
Long-term debt:
Bonds payable, due December 31, 2018...................... 250,000
Total liabilities..................................................................... $307,880

Stockholders’ Equity
Contributed capital:
Capital stock, $1 par value, 200,000
shares issued and outstanding................................ $200,000
Paid-in capital in excess of par value............................ 75,000
Total contributed capital...................................................... $275,000
 Retained earnings............................................................... 113,510
Total stockholders’ equity................................................... 388,510
Total liabilities and stockholders’ equity............................. $696,390

2. Current Ratio = Current Assets/Current Liabilities

$219,390/$57,880 = 3.79 to 1

3. From the current ratio alone, Singer appears to be relatively liquid. In fact, Singer
may be too liquid, in that its cash balance is greater than its total current liabilities.
Singer may be missing significant investment opportunities by maintaining such a
large cash balance. To fully assess its liquidity, it would be useful to look more
specifically at the activity in accounts receivable and merchandise inventory. How
long does it take to collect an account receivable? How long does it take to sell
inventory? Also, you would want to compare Singer’s current ratio at the end of this
period with prior periods, and with the current ratio for companies in the same
industry.

Solution to Problem 3-12 (Page no. 137)

Follow the table format I shared in the class
1. Journal entries:

Jan. 2 Cash a/c..............................................Dr. 100,000

To Capital Stock a/c........................... 100,000
Being Issued 100,000 shares of capital stock
for cash.

Jan. 3 Warehouse a/c....................................Dr. 60,000

Land a/c..............................................Dr. 20,000
To Cash a/c........................................ 80,000
Being Purchased warehouse and land for cash.

Jan. 4 Cash a/c..............................................Dr. 50,000

To Notes Payable a/c......................... 50,000
Being Signed three-year promissory note
at Third State Bank.
Jan. 6 Delivery Trucks a/c.............................Dr. 45,000
To Cash a/c........................................ 45,000
Being Purchased five new delivery trucks for cash.

Jan. 31 Accounts Receivable a/c....................Dr. 15,900

To Service Revenue a/c..................... 15,900
Being Performed services during month on
account.

Jan. 31 Cash a/c..............................................Dr. 7,490

To Accounts Receivable a/c.............. 7,490
Being Received cash from customers on
account.

Jan. 31 Gas and Oil Expense a/c....................Dr. 3,230

To Accounts Payable a/c................... 3,230
Being Purchased gas and oil on account.

2. BLUE JAY DELIVERY SERVICE

TRIAL BALANCE
FOR THE MONTH ENDED JANUARY 31
Debits Credits
Cash.................................................................................... $ 32,490
Warehouse.......................................................................... 60,000
Land.................................................................................... 20,000
Delivery Trucks................................................................... 45,000
Accounts Receivable.......................................................... 8,410
Accounts Payable............................................................... $ 3,230
Capital Stock....................................................................... 100,000
Notes Payable..................................................................... 50,000
Service Revenue................................................................. 15,900
 Gas and Oil Expense.......................................................... 3,230
Totals............................................................................. $169,130 $169,130

3. BLUE JAY DELIVERY SERVICE

INCOME STATEMENT
FOR THE MONTH ENDED JANUARY 31
Service revenue........................................................................................ $15,900
Less: Gas and oil expense....................................................................... 3,230
Net income................................................................................................ $12,670
4. BLUE JAY DELIVERY SERVICE
BALANCE SHEET
AS ON JANUARY 31
Assets
Current assets:
Cash.............................................................................. $ 32,490
Accounts receivable...................................................... 8,410
Total current assets............................................................ $ 40,900
Property, plant, and equipment:
Land............................................................................... $ 20,000
Warehouse.................................................................... 60,000
Delivery trucks............................................................... 45,000
Total property, plant, and equipment....................... 125,000
Total assets......................................................................... $165,900
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable.......................................................... $ 3,230
Long-term debt:
Notes payable................................................................ 50,000
Total liabilities..................................................................... $ 53,230
Capital stock....................................................................... $100,000
Retained earnings............................................................... 12,670
Total stockholders’ equity.............................................. 112,670
Total liabilities and stockholders’ equity............................. $165,900
5. Additional information needed:
Jan. 3: Is the warehouse new?
How large is it?
What volume of business can it support?
Is it insured?
Jan. 4: What is the interest rate on the loan?
Are there any restrictions on the company’s operations in the debt
agreement (covenants)?
Were any assets offered as collateral?
What is the repayment schedule?
Jan. 6: How long are the trucks expected to last?
Will they have any salvage value?
What volume of business can they support?
Jan. 31: When will customers pay the remaining balance?
What is the credit standing of the customers?
Is there a limit on how much the company charges?
What if the company cannot pay by the tenth?
Solution to Problem 3-2A (Page no. 139)
1. BEACHWAY ENTERPRISES
FOR THE MONTH OF JUNE
Assets = Liabilities + Stockholders’ Equity
Accounts Accounts Capital Retained
Date Cash Receivable Equipment Supplies Payable Stock Earnings
6/1 $4,000 $4,000
6/1 $6,250 $6,250
Bal. $4,000 $6,250 $6,250 $4,000
6/5 –35 $ –35
Bal. $3,965 $6,250 $6,250 $4,000 $ (35)
6/10 $50 50
Bal. $3,965 $6,250 $50 $6,300 $4,000 $ (35)
6/15 –70 –70
Bal. $3,895 $6,250 $50 $6,300 $4,000 $ (105)
6/17 1,000 1,000
Bal. $4,895 $6,250 $50 $6,300 $4,000 $ 895
6/24 $2,000 2,000
Bal. $4,895 $2,000 $6,250 $50 $6,300 $4,000 $2,895
6/29 1,000 –1,000
Bal. $5,895 $1,000 $6,250 $50 $6,300 $4,000 $2,895
6/30 1,500 1,500
Bal. $7,395 $1,000 $6,250 $50 $6,300 $4,000 $4,395
6/30 –90 –90
Bal. $7,305 $1,000 $6,250 $50 $6,300 $4,000 $4,305
6/30 –6,250 –6,250
Bal. $1,055 $1,000 $6,250 $50 $ 50 $4,000 $4,305

TOTAL ASSETS: $8,355 TOTAL LIABILITIES AND

STOCKHOLDERS’ EQUITY: $8,355

2. BEACHWAY ENTERPRISES
INCOME STATEMENT
FOR THE MONTH ENDED JUNE 30
Rental fee revenue.............................................................. $4,500*
Expenses:
Registration fee............................................................. $35
Advertising..................................................................... 70
Salaries and wages....................................................... 90 195
Net income.......................................................................... $4,305
*$1,000 + $2,000 + $1,500
3. BEACHWAY ENTERPRISES
BALANCE SHEET
AS ON JUNE 30
Assets
Current assets:
Cash.............................................................................. $1,055
Accounts receivable...................................................... 1,000
Supplies......................................................................... 50
Total current assets............................................................ $2,105
Property, plant, and equipment:
Equipment..................................................................... 6,250
Total assets......................................................................... $8,355
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable.......................................................... $ 50
Capital stock....................................................................... $4,000
Retained earnings............................................................... 4,305
Total stockholders’ equity.............................................. 8,305
Total liabilities and stockholders’ equity............................. $8,355

Solution to Problem 3-9A (Page no. 143)

Use the journal entry format
a.

Cash a/c..........................................................Dr. $150,000

To Capital Stock a/c...................................... $150,000
Issued 10,000 shares of capital stock for cash.

b.

Rent Expense a/c...........................................Dr. 400

To Cash a/c................................................... 400
Paid February rent.

c.

Cash a/c..........................................................Dr. 100,000

To Notes Payable a/c.................................... 100,000
Signed five-year promissory note.
d.

Computer Software a/c...................................Dr. 950

To Cash* a/c................................................. 950
Purchased software to be used over next
two years.
*Assuming cash was paid; if not, Accounts Payable would be credited.
e.

Accounts Receivable a/c................................Dr. 12,500

To Consulting Revenue a/c........................... 12,500
Billed customers for work performed during month.

f.

Wage and Salary Expense a/c.......................Dr. 3,000

To Cash a/c................................................... 3,000
Paid office personnel for work performed
during month.

g.

Utilities Expense a/c.......................................Dr. 100

To Accounts Payable a/c.............................. 100
Received utility bill to be paid within 30 days.

Solution to Problem 3-10A (Page no. 143)

1. T Accounts
Cash Accounts Receivable
(a) 150,000 400 (b) (e) 12,500
(c) 100,000 950 (d)
3,000 (f)
250,000 4,350

Bal. 245,650
 Computer Software Accounts Payable
(d) 950 100 (g)

Notes Payable Capital Stock

100,000 (c) 150,000 (a)

Consulting Revenue Wage and Salary Expense

12,500 (e) (f) 3,000

Rent Expense Utilities Expense

(b) 400 (g) 100

2. CASTLE CONSULTING AGENCY

TRIAL BALANCE
FOR THE MONTH ENDED FEBRUARY 28
Debits Credits
Cash.................................................................................... $245,650
Accounts Receivable.......................................................... 12,500
Computer Software............................................................. 950
Accounts Payable............................................................... $ 100
Notes Payable..................................................................... 100,000
Capital Stock....................................................................... 150,000
Consulting Revenue........................................................... 12,500
Wage and Salary Expense................................................. 3,000
Rent Expense..................................................................... 400
Utilities Expense................................................................. 100
Totals............................................................................. $262,600 $262,600