Question

Penny Cassidy has decided to start her business, Penny's Pool Service & Supply, Inc. (PPSS). There is much to do when starting a new business. Here are some transactions that have occurred in PPSS in March. 5 eBook a. Received $29,000 cash and a large delivery van with a value of $40,000 from Penny, who was given 4,400 shares of $0.05 par value common stock in exchange. b. Purchased land with a small office and warehouse by paying $12,000 cash and signing a 10-year note payable to the local bank for $82,000. The land has a value of $20,000 and the building's value is $74,000. Use separate accounts for land and buildings c. Purchased new computer equipment from Del for $2,900 cash, and purchased other office equipment for $4.400, signing a note payable due in six months to the office equipment manufacturer d. Hired a receptionist for the office at a salary of $1,900 per month; the receptionist will begin working for PPSS starting in April, e. Paid $1,400 on the note payable to the bank (in (b) above) at the end of March (ignore interest). 1. Purchased short-term investments in the stock of other companies for $5,400 cash. g. Ordered $14,000 in inventory from Pool Corporation, Inc., a pool supply wholesaler, to be received in April. =ferences Required: 1. For each of the events, prepare journal entries if a transaction of the business exists, checking that debits equal credits 2. Use the following T-accounts, and post each of the transactions to determine balances at March 31. Because this is a new business, beginning balances are $0. 3. Prepare a trial balance on March 31 to check that debits equal credits after the transactions are posted to the T-accounts. 4. From the trial balance prepare a classified balance sheet at March 31 (before the beginning of operations in April). 5. For each of the events indicate if it is an investing activity (or financing activity (F), and the direction (+ for increases; - for decreases) and amount of the effect on cash flows using the following structure. Select NE if there is no effect on cash flows. 6. Calculate the current ratio at March 31,

Answer 1

Credit Calculation Penny's Pool Service & Supply Inc. (PPSS) Journal entries Date Account Debit a Cash $ 29,000 Equipment $ 40,000 Common Stock Additional Paid-in Capital =4400*0.05 $ 220 $ 68,780 $ 20,000 $ 74,000 b Land Buildings Cash Notes Payable (Non-Current) $ 12,000 $ 82,000 C $ 7,300 Equipment Cash Notes Payable (Current) $ 2,900 $ 4,400 d No Entry $ $ $ e 1,400 Notes Payable (Non-Current) $ Cash $ 1,400 f $ 5,400 Short-term Investments Cash $ 5,400 8 No Entry $ $ $

Credit Credit Penny's Pool Service & Supply Inc. (PPSS) T Accounts Date Debit Date Credit Date Debit Date Credit Cash Short-term Investments Beg. Bal. $ Beg. Bal. $ a $ 29,000 f $ 5,400 b $ 12,000 с $ 2,900 е $ 1,400 f $ 5,400 Date Debit Date Equipment Beg. Bal. $. a $ 40,000 $ 7,300 Date Debit Date Land Beg. Bal. $ - b $ 20,000 с Bal. Bal. . $ 20,000 Bal. $ 7,300 Buildings Beg. Bal. $ b $ 74,000 $ 5,400 Notes Payable (Current) Beg. Bal. $ с $ 4,400 Bal. $ 47,300 Notes Payable (Non-Current) Beg. Bal. $ b $ 82,000 e $ 1,400 Bal. Bal. $ 80,600 $ 74,000 Common Stock Beg. Bal. $ a $ Bal. $ 4,400 Additional Paid-in Capital Beg. Bal. $ a $ 68,780 220 Bal. $ 220 Bal. $ 68,780

Penny's Pool Service & Supply Inc. (PPSS) Account Names Cash Short-term Investments Equipment Land Buildings Notes Payable (Current) Notes Payable (Non-Current) Common Stock Additional Paid in Capital Totals Trial Balance Debit Credit 7,300 5,400 47,300 20,000 74,000 4,400 80,600 220 68,780 154,000 154,000

Penny's Pool Service & Supply Inc. (PPSS) Balance Sheet As of March 31 Assets Current Assets Cash Short-term Investments Total Current Assets 4,400 Liabilities & Stockholders Equity Current Liabilities 7,300 Notes Payable (Current) 5,400 12,700 Non-Current Liabilties Notes Payable (Non-Current) Total Liabilties 80,600 85,000 Property, Plant & Equipment Equipment Land Buildings Total Property, Plant & Equipment Stockholders Equity 47,300 Common Stock 20,000 Additional Paid in Capital 74,000 141,300 Total Stockholders Equity 220 68,780 69,000 Total Assets 154,000 Total Liabilities & Stockholders Equity 154,000 Reg 6 Current Ratio Current Assets/ Current Liabilities 12700/4400 2.89 Current Ratio

Penny's Pool Service & Supply Inc. (PPSS) Cashflows Impact Effect Event Activity a F b I + с I d NE NE Amount $ 29,000 $(12,000) $ (2,900) $ $ (1,400) $ (5,400) $ $ 7,300 e F - f 1 NE 8 NE Totals