Question

Cougar Plastics Company has been operating for three years. At December 31, 2014, the accounting records reflected the following:


During the year 2015, the company had the following summarized activities:
a. Purchased short-term investments for $10,000 cash.
b. Lent $5,000 to a supplier who signed a two-year note.
c. Purchased equipment that cost $18,000; paid $5,000 cash and signed a one-year note for the balance.
d. Hired a new president at the end of the year. The contract was for $85,000 per year plus options to purchase company stock at a set price based on company performance.
e. Issued an additional 2,000 shares of $0.50 par value common stock for $11,000 cash.
f. Borrowed $9,000 cash from a local bank, payable in three months.
g. Purchased a patent (an intangible asset) for $3,000 cash.
h. Built an addition to the factory for $24,000; paid $8,000 in cash and signed a three-year note for the balance.
i. Returned defective equipment to the manufacturer, receiving a cash refund of $1,000.

Required:
1. Create T-accounts for each of the accounts on the balance sheet and enter the balances at the end of 2014 as beginning balances for 2015.
2. Record each of the events for 2015 in T-accounts (including referencing) and determine the ending balances.
3. Explain your response to event (d).
4. Prepare a trial balance at December 31, 2015.
5. Prepare a classified balance sheet at December 31, 2015.
6. Compute the current ratio for 2015. What does this suggest about CougarPlastics?


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  • CreatedJuly 01, 2014
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