Analyzing the Effects of Transactions Using T-Accounts and Interpreting the Current Ratio...

Analyzing the Effects of Transactions Using T-Accounts and Interpreting the Current Ratio as a Manager of the Company

Zeber Company has been operating for one year (2011). You are a member of the management team investigating expansion ideas that will require borrowing funds from bunks. At the start of 2012. Zeber’s

T-account balance were as follows:

Required:

1. Using the data from these T-accounts, determine the amounts for the following on January 1, 2012:

2. Enter the following 2012 transactions in the T-accounts:

(a) Borrowed 53,000 from a local bank, signing a note due in three years.

(b) Sold 51,000 of the investments for S1.000 cash.

(c)Sold one-half of the property and equipment for $1.250 in cash.

(d) Paid $300 in cash dividends to stockholders.

3. Compute ending balances in the T-accounts to determine amounts for the following on December 31. 2012:

4. Calculate the current ratio at December 31, 2012. If the industry average for the current ratio is 1.50, what does your computation suggest to you about Zeber Company? Would you suggest that Zeber Company increase its short-term liabilities? Why or why not?