Question

P2-3 Recording Transactions in T-Accounts, Preparing the Balance Sheet from a Trial Balance, and Evaluating the Current Ratio LO2-2, 2-4, 2-5 The following information applies to the questions displayed below.] Cougar Plastics Company has been operating for three years. At December 31 of last year the accounting records reflected the following Cash Investments (short-term) Accounts receivable Inventory Notes receivable (long-term) Equipment Factory building Intangibles $22,000 Accounts payable $15,000 4,000 7,000 47,000 10,000 80,000 31,000 3,000 3,000 Accrued liabilities payable Notes payable (short-term) Notes payable (long-term) 20,000 1,000 Common stock 50,000 Additional paid-in capital 90,000 Retained earnings 5,000 During the current year, the company had the following summarized activities a. Purchased short-term investments for $10,000 cash b. Lent $5,000 to a supplier who signed a two-year note c. Purchased equipment that cost $18,000; paid $5,000 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 company performance e. Issued an additional 2,000 shares of $0.50 par value common stock for $11,000 cash. f. Borrowed $9,000 cash from a local bank, payable in three months g. Purchased a patent (an intangible asset) for $3,000 cash. h. Built an addition to the factory for $24,000; paid $8,000 in cash and signed a three-year note for the balance i. Returned defective equipment to the manufacturer, receiving a cash refund of $1,000

Answer 1

Ans- T-Accounts

	Cash
Beg.	22,000
e	11,000	10,000	a
f	9,000	5,000	b
i	1,000	5,000	c
		3,000	g
		8,000	h
	12,000
	Equipment
Beg.	50,000
c	18,000	1,000	i
	67,000
	Accounts Payable
		15,000	Beg.
		15,000
	Long-Term Notes Payable
		47,000	Beg.
		16,000	h
		63,000
	Retained Earnings
		31,000	Beg.
		31,000
	Investments (short-term)
Beg.	3,000
a	10,000
	13,000
	Inventory
Beg.	20,000
	20,000
	Factory Building
Beg.	90,000
h	24,000
	114,000
	Accrued Liabilities Payable
		4,000	Beg.
		4,000
	Common Stock
		10,000	Beg.
		1,000	e
		11,000
	Accounts Receivable
Beg.	3,000
	3,000
	Notes Receivable (long-term)
Beg.	1,000
b	5,000
	6,000
	Intangibles
Beg.	5,000
g	3,000
	8,000
	Notes Payable (short-term)
		7,000	Beg.
		13,000	c
		9,000	f
		29,000
	Additional Paid-in Capital
		80,000	Beg.
		10,000	e
		90,000

Cougar Plastics Company

Trial Balance

At December 31

	Debit	Credit
Cash	$12,000
Investments (short-term)	13,000
Accounts Receivable	3,000
Inventory	20,000
Notes Receivable (long-term)	6,000
Equipment	67,000
Factory Building	114,000
Intangibles	8,000
Accounts Payable		15,000
Accrued Liabilities Payable		4,000
Notes Payable (Short-term)		29,000
Notes Payable (long-term)		63,000
Common Stock		11,000
Additional Paid-in Capital		90,000
Retained Earnings		31,000
Totals	$243,000	$243,000

Cougar Plastics Company

Balance Sheet

At December 31

Assets		Liabilities
Current Assets		Current Liabilities
Cash	$12,000	Accounts Payable	$15,000
Investments	13,000	Accrued liabilities payable	4,000
Accounts receivable	3,000	Notes Payable	29,000
Inventory	20,000
Total Current Assets	48,000	Total Current Liabilities	48,000
		Long-Term notes payable	63,000
		Total Liabilities	111,000
Notes receivable	6,000	Stockholders' Equity
Equipment	67,000	Common Stock	11,000
Factory building	114,000	Additional paid-in capital	90,000
Intangibles	8,000	Retained earnings	31,000
		Total Stockholders; Equity	132,000
Total Assets	$243,000	Total Liabilities and Stockholders' Equity	$243,000

Current Ratio= Current Assets/ Current Liabilities

=$48,000/ $48,000

=1

The current ratio of company shows that company has relatively low liquidity. For every $1 of current liabilities company maintains only $1 of current assets.

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