Question

Higgins Company began operations last year. You are a member of the management team investigating expansion ideas that will require borrowing funds from banks. On January 1, the start of the current year, Higgins' T-account balances were as follows: Assets: Cash 6,800 Short-Term Investments 5,500 Property and Equipment 4,200 Liabilities: Notes Payable (current) Notes Payable (noncurrect) 3,400 2,000 Common Stock Additional Paid-in Capital Retained Earnings 1,100 5,200 4,800 Required: 1. Using the data from these T-accounts, determine the amounts for the following on January 1 of the current year: 2. Prepare journal entries for transactions (a) through (e) for the current year. a. Borrowed $7,000 from a local bank, signing a note due in three years. b. Sold $4,500 of the investments for $4,500 cash. c. Sold one-half of the property and equipment for $2,100 in cash. d. Declared $2,000 in cash dividends to stockholders. e. Paid dividends to stockholders. 3. Enter the effects of the transactions in 2. above in the T-accounts. 4. Prepare a trial balance at December 31. 5. Prepare a classified balance sheet at December 31 of the current year in good form. 6. Other stockholders' equity items Calculate the current ratio at December 31 of the current year. If the industry average for the current ratio is 1.38.

Answer 1

Higgins Company Journal entries Date Account Cash Notes Payable (non-current) Credit Calculation Debit $ 7,000 $ 7,000 b $ 4,500 Cash Short-Term Investments $ 4,500 Cash $ 2,100 Property and Equipment $ 2,100 4200/2 $ 2,000 Retained Earnings Dividends Payable $ 2,000 $ 2,000 Dividends Payable Cash $ 2,000

Credit Date Date Higgins Company T Accounts Date Debit Date Cash Op bal $ 6,800 $ 7,000 $ 4,500 $ 2,100 Debit Date Credit Short-Term Investments $ 5,500 $ 4,500 Debit Date Credit Property and Equipment $ 4,200 $ 2,100 Op bal Op bal $ 2,000 Bal. Bal. Bal. $ 18,400 Notes Payable (current) Op bal $ 3,400 $1,000 Notes Payable (non-current) Op bal $ 2,000 $ 7,000 $ 2,100 Dividends Payable Op bal $ 2,000 d $ . $ 2,000 e $ 3,400 $ - Bal. Common Stock Op bal Bal. $ 9,000 Additional Paid-in Capital Op bal $ 5,200 Bal. Retained Earnings Op bal $ 2,000 $ 1,100 $ 4,800 Bal. $ 1,100 Bal. $ 5,200 Bal. $ 2,800

Trial Balance Debit Credit 18,400 1,000 2,100 3,400 Higgins Company Account Names Cash Short-Term Investments Property and Equipment Notes Payable (current) Dividends Payable Notes Payable (non-current) Common Stock Additional Paid-in Capital Retained Earnings Totals 9,000 1,100 5,200 2,800 21,500 21,500

Higgins Company Balance Sheet As of December 31 Assets Current Assets Cash Short-Term Investments Total Current Assets 18,400 1,000 19,400 Property, Plant & Equipment Property and Equipment Total Assets 2,100 21,500 Liabilities & Stockholders Equity Current Liabilities Notes Payable (current) Dividends Payable Total Current Liabilities 3,400 3,400 Non-Current Liabilties Notes Payable (non-current) Total Liabilties 9,000 12,400 Stockholders Equity Common Stock Additional Paid-in Capital Retained Earnings Total Stockholders Equity Total Liabilities & Stockholders Equity 1,100 5,200 2,800 9,100 21,500

Current Ratio	Current Assets/ Current Liabilities
	'= 19400 / 3400
Current Ratio	5.71