Question

Cougar Plastics Company has been operating for three years. At December 31 of last year, the accounting records reflected the following:

Cash $ 20,000
Accounts payable $ 19,000
Investments (short-term) 3,500
Accrued liabilities payable 2,000
Accounts receivable 4,400
Notes payable (short-term) 5,200
Inventory 30,000
Notes payable (long-term) 49,000
Notes receivable (long-term) 1,400
Common stock 9,300
Equipment 43,000
Additional paid-in capital 83,700
Factory building 101,000
Retained earnings 38,600
Intangibles 3,500

Summarized activities during the year:
Purchased short-term investments for $7,800 cash.
Lent $5,900 to a supplier who signed a two-year note.
Purchased equipment that cost $23,000; paid $4,500 cash and signed a one-year note for the balance.
Hired a new president at the end of the year. Contract was for $88,000 per year plus options to purchase company stock at a set price based on company performance.
Issued an additional 1,300 shares of $0.50 par value common stock for $19,000 cash.
Borrowed $15,000 cash from a local bank, payable in three months.
Purchased a patent (an intangible asset) for $1,200 cash.
Built an addition to the factory for $24,000; paid $8,000 in cash and signed a three-year note for the balance.
Returned defective equipment to the manufacturer, receiving a cash refund of $3,400.

1-4:

Post the current year transactions to T-accounts for each of the accounts on the balance sheet (Cash, Investments, Accounts Receivable, Inventory, Notes receivable long term, equipment, factory building, intangibles, accounts payable, accrued liabilities payable, notes payable short term, long term notes payable, common stock, additional paid-in capital, retained earnings), Prepare a trial balance at December 31 of the current year, & Compute the current ratio for the current year -- round to 2 decimal places.

Answer 1

ACCOUNTS AS ON 31ST DECEMBER

PARTICULARS	AMT(IN $)	PARTICULARS	AMT(IN $)
1. CASH ACCOUNT
TO OPENING	20000	BY ST INVESTMENT	7800
TO ISSUE OF COMMON STOCK	19000	BY LENT (NOTE RECEIVABLES LONG TERM)	5900
TO NOTE PAYABLE SHORT TERM	15000	BY EQUIPMENT PURCHASE	4500
TO EQUIPMENT RETURNED	3400	BY PATENT PURCHASE	1200
		BY FACTORY ADDITION	8000
		BY PAYMENT TO BANK FOR BORROWINGS (ST NP)	15000
		BY CLOSING	15000
	57400		57400
2.ACCOUNT PAYABLE
		BY OPENING	19000
TO CLOSING	19000
	19000		19000
3. SHORT TERM INVESTMENT
TO OPENING	3500
TO CASH	7800	BY CLOSING	11300
	11300		11300
4. ACCRUED LIABILITIES PAYABLE
		BY OPENING	2000
TO CLOSING	2000
	2000		2000
5.ACCOUNT RECEIVABLES
TO OPENING	4400	BY CLOSING	4400
	4400		4400
6. INVENTORY
TO OPENING	30000	BY CLOSING	30000
	30000		30000
7. NOTE PAYABLE SHORT TERM
TO CASH ( PAYMENT OF BORROWING)	15000	BY OPENING	5200
		TO EQUIPMENT PURCHASE	18500
TO CLOSING	23700	TO CASH	15000
	38700		38700
8. NOTE PAYABLE LONG TERM
		BY OPENING	49000
TO CLOSING	65000	BY FACTORY	16000
	65000		65000
9. NOTE RECEIVABLES LONG TERM
TO OPENING	1400
TO CASH	5900	BY CLOSING	7300
	7300		7300
10. COMMON STOCK
		BY OPENING	9300
		BY PRESIDENT (W.N)	3011
TO CLOSING	12961	BY CASH (1300 SHARES @ .50 PAR)	650
	12961		12961
11. ADDITIONAL PAID-UP CAPITAL
		BY OPENING	83700
TO CLOSING	83700
	83700		83700
12. RETAINED EARNING
		BY OPENING	38600
TO PRESIDENT (P&L)	88000	BY CASH (19000-650) (SEC. PREMIUM)	18350
TO CLOSING	53939	BY PRESIDENT (SEC. PREMIUM) (W.N)	84989
	141939		141939
13. EQUIPMENT
TO OPENING	43000
TO PURCHASE	23000	BY RETURNED (CASH)	3400
		BY CLOSING	62600
	66000		66000
14. FACTORY BUILDING
TO OPENING	101000
TO PURCHASE	24000	BY CLOSING	125000
	125000		125000
15. INTANGIBLE ASSET`
TO OPENING	3500
TO CASH (PATENT PURCHASE)	1200	BY CLOSING	4700
	4700		4700
16. PRESIDENT
TO COMMON STOCK	3011	BY SALARIES / REMUNERATION (P & L)	88000
TO SEC. PREMIUM	84989
	88000		88000

NOTE: WE ASSUMED THAT BORROWING FROM BANK $ 15000 FOR THREE MONTH ON THE BASIS OF SHORT TERM NOTE PAYABLE IS PAID IN CURRENT YEAR.

WORKING NOTE:

1. FACE VALUE OF SHARE = $ 0.50PER SHARE

NO. OF ADDITION SHARE ISSUED = 1300

FOR 13000 CASH

SHARE CAPITAL = 1300 @ 0.50 = $ 650

SECURITY PREMIUM = 19000-650 = 18350.

2. CONTRACT WITH PRESIDENT FOR $ 88000. WE ASSUMED THAT IS FOR REMUNERATION / SALARY WHICH IS PAID BY ISSUE COMMON STOCK.

NO. OF COMMON STOCK ISSUED = 88000 / 19000 X 1300 = 6021 SHARES (APPROX)

SHARE CAPITAL = 6021 @ 0.50 = $ 3011 (APPROX)

SECURITY PREMIUM = 88000 - 3011 = 84989.

OR

IN RATIO

SHARE CAPITAL = 88000 x 650 /19000 = 3011 (APPROX)

SEC. PREMIUM = 88000 X 18350 / 19000 = 84989 (APPROX).

TRIAL BALANCE AS ON 31 ST DECEMBER	DR.	CR.
PARTICULARS	AMT (IN $)	AMT (IN $)
COMMON STOCK		12961
RETAINED EARNING		53939
ADDITIONAL PAID-UP CAPITAL		83700
FACTORY BUILDING	125000
EQUIPMENT	62600
INTANGIBLE ASSET	4700
LONG TERM NOTE RECEIVABLES / PAYABLES	7300	65000
ACCOUNT RECEIVABLES / PAYABLES	4400	19000
SHORT TERM INVESTMENT	11300
CASH	15000
ACCRUED LIABILITIES PAYABLE		2000
SHORT TERM NOTE PAYABLE		23700
OPENING INVENTORY	30000
TOTAL	260300	260300

NOTE : CLOSING STOCK = 30000.

CALCULATION OF CURRENT RATIO:

CURRENT RATIO = CURRENT ASSETS / CURRENT LIABILITIES

= 60700 / 44700

= 1.36 TIMES

CURRENT ASSETS = CLOSING INVENTORY + CASH + ST INVESTMENT + ACCOUNT RECEIVABLES

= 30000 + 15000 + 11300 + 4400

= 60700

CURRENT LIABILITIES = ACCOUNT PAYABLE + ACCRUED LIABILITIES + ST NOTE PAYABLE

= 19000 + 2000 + 23700

= 44700