Business Sim Corp. (BSC) issued 1,000 common shares to Kelly in exchange for $ 12,000. BSC borrowed $ 30,000 from the bank, promising to repay it in two years. BSC paid $ 35,000 for computer equipment with check number 101 and signed a note for $ 5,000 due in six months. BSC received $ 900 of supplies purchased on account. BSC’s loan contains a clause (“covenant”) that requires BSC to maintain a ratio of current assets to current liabilities of at least 1.3.
1. Identify the transactions and analyze their accounting equation effects, using the format shown in the chapter.
2. Prepare journal entries for the transactions described above and post them to T- accounts.
3. Assuming BSC entered into no other activities during its first year ended September 30, pre-pare the company’s classified balance sheet. Include a balance of zero in Retained Earnings.
4. Determine and explain whether BSC is complying with or violating its loan covenant.

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