Question

Required information E2-16 (Algo) Analyzing the Effects of Transactions Using T-Accounts, Preparing a Balance Sheet, and Evaluating the Current Ratio over Time as a Bank Loan Officer LO2-4, 2-5 (The following information applies to the questions displayed below.) Bailey Delivery Company, Inc., was organized in 2018 in Wisconsin. The following transactions occurred during the year: a. Received cash from investors in exchange for 16,000 shares of stock (par value of $1.00 per share) with a market value of $11 per share. b. Purchased land in Wisconsin for $20,000, signing a one-year note (ignore interest). c. Bought two used delivery trucks for operating purposes at the start of the year at a cost of $11,000 each; paid $3,000 cash and signed a note due in three years for the rest (ignore interest). d. Paid $2,700 cash to a truck repair shop for a new motor for one of the trucks. (Increase the account you used to record the purchase of the trucks because the productive life of the truck has been improved) e. Sold one-fourth of the land for $5,000 to Pablo Development Corporation, which sigped a six-month note. f. Stockholder Helen Bailey paid $29,200 cash for a vacant lot (land) in Canada for her personal use. E2-16 Part 4 . At the end of the next two years, Bailey Delivery Company reported the following amounts on its balance sheets: Current Assets Long-Term Assets Total Assets Short-Term Notes Payable TARRm Natae Dahle December 31, 2019 $ 54,000 42,000 96,000 24,000 10 nnn December 31, 2020 $ 57,000 74,000 131,000 36,000 17 Ann

Answer 1

Current Ratio = current assets / current liabilities

2018 current assets = cash + Short-term notes receivable

Cash balance = beginning cash balance + cash received through capital issue (transaction A) - cash paid for purchase of delivery trucks (transaction C) - cash paid for truck repair (transaction D) = 0+(16000*11)-3000-2700 = $170300

2018 current liabilities = short term notes payable = $20000 (transaction B)

2018 current ratio = 170300/20000 = 8.52

2019 current ratio = 54000/24000= 2.25

2020 current ratio = 57000/36000 = 1.58