East Hill Home Healthcare Services was organized on January 1, 2013, by four friends. Each organizer invested $ 10,000 in the company and, in turn, was issued 8,000 shares. To date, they are the only shareholders. At the end of 2014, the accounting records reflected total assets of $ 700,000 ($ 50,000 cash, $ 500,000 land, $ 50,000 equipment, and $ 100,000 buildings), total liabilities of $ 200,000 ( short- term notes payable of $ 100,000 and long- term notes payable of $ 100,000), and shareholders’ equity of $ 500,000 ($ 100,000 contributed capital and $ 400,000 retained earnings). The following summarized events occurred during January 2015:
a. Sold 9,000 additional shares to the original organizers for a total of $ 90,000 cash.
b. Purchased a building for $ 60,000, equipment for $ 15,000, and four acres of land for $ 14,000; paid $ 9,000 in cash and signed a note for the balance (due in 15 years).
c. Sold one acre of land acquired in (b) for $ 3,500 cash to another company.
d. Purchased short- term investments for $ 18,000 cash.
e. One shareholder reported to the company that he sold 300 East Hill shares to another shareholder for $ 3,000 cash.
f. Lent $ 5,000 to one of the shareholders for moving costs, receiving a signed six- month note from the shareholder.
Required:
1. Was East Hill Home Healthcare Services organized as a sole proprietorship, a partnership, or a corporation? Explain the basis for your answer.
2. During January 2015, the records of the company were inadequate. You were asked to prepare the summary of the preceding transactions. To develop a quick assessment of their economic effects on East Hill Home Healthcare Services, you have decided to complete the tabulation that follows and to use plus (+) for increases and minus (–) for decreases for each account. The first event is used as an example.
3. Did you include the transaction between the two shareholders— event (e)— in the tabulation? Why or why not?
4. Based only on the completed tabulation, provide the following amounts at January 31, 2015 (show computations):
a. Total assets
b. Total liabilities
c. Total shareholders’ equity
d. Cash balance
e. Total current assets
5. Compute the current ratio at January 31, 2015. What does this suggest about the company?