Chu Delivery Company Inc. was organized in 2015. The following transactions occurred during 2015:
a. Received $ 40,000 cash from organizers in exchange for shares in the new company.
b. Purchased land for $ 12,000, signing a one- year note.
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. Sold one- fourth of the land for $ 3,000 to Pablo Moving, which signed a six- month note.
e. Paid $ 1,000 cash to a truck repair shop for a new motor for one of the trucks.
f. Shareholder Jingbi Chu paid $ 27,600 from her personal savings to purchase a vacant lot (land) for her personal use.
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 Chu Delivery Company.
2. Prepare a classified statement of financial position for Chu Delivery Company at December 31, 2015.
3. At the end of the next two years, Chu Delivery Company reported the following amounts on its statements of financial position:
Compute the company’s current ratio for 2015, 2016, and 2017. What is the trend and what does this suggest about the company?
4. At the beginning of 2018, Chu Delivery Company applied to your bank for a $ 100,000 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 Chu Delivery Company?

  • CreatedAugust 04, 2015
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