Analyzing the Effects of Transactions Using T-Accounts, Preparing a Balance Sheet, and Evaluating the Current Ratio over Time as a Bank Loan Officer
Strauderman Delivery Company, Inc., was organized in 2011 in Wisconsin. The following transactions occurred during year 2011:
a. Received $40.000 cash from organizers in exchange for stock in the new company.
b. Purchased land in Wisconsin for $I6.000, 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 $10.000 each: paid $4.000 cash and signed a note due in three years for the rest (ignore interest).
d. Paid $I,000 cash to a truck repair shop for a new motor for one of the trucks. (Hint: Increase the account you used to record the purchase of the trucks since the productive life of the truck has been improved.)
e. Sold one-fourth of the land for $4,000 to Pablo Moving, which signed a six-month note.
f. Stockholder Melissa Strauderman paid $27.600 cash for a vacant lot (land) in Canada for her personal use.
Required:
1. Set up appropriate T-accounts with beginning balances of zero for Cash. Short-Term Notes Receivable. Land. Equipment. Short-Term Notes Payable. Long-Term Notes Payable, and Contributed Capital. Using the T-accounts. record the effects of these transactions by Strauderman Delivery Company.
2. Prepare a classified balance sheet for Strauderman Delivery Company at December 31. 201 1.
3. At the end of the next two years. Strauderman Delivery Company reported the following amounts on its balance sheets:
| December 31, 2012 | December 31, 2013 |
Current Assets | $52.000 | $ 47.000 |
Long-Term Assets | 38.000 | 73.000 |
Total Assets | 90,000 | 120,000 |
Short-Term Notes Payable | 23.000 | 40.000 |
Long-Term Notes Payable | 17.000 | 20.000 |
Total Liabilities | 40.000 | 60,000 |
Stockholders’ Equity | 50,000 | 60,000 |
Compute the company’s current ratio for 2011, 2012, and 2013. What is the trend and what does this suggest about the company?
4. At the beginning of year 2014, Strauderman Delivery Company applied to your bank for a $50.000 short-term loan to expand the business. The vice president of the bank asked you to review the information and make a recommendation on lending the funds based solely on the results of the current ratio. What recommendation would you make to the bank’s vice president about lending the money to Strauderman Delivery Company?
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