Higgins Company has been operating for one year (2014). You are a member of the management team investigating expansion ideas that will require borrowing funds from banks. At the start of 2015, Higgins’s T-account balances were as follows:

1. Using the data from these T-accounts, determine the amounts for the following on January 1, 2015:
Assets $________ = Liabilities $________ + Stockholders’ Equity $________
2. Enter the following 2015 transactions in the T-accounts:
(a) Borrowed $4,000 from a local bank, signing a note due in three years.
(b) Sold $1,500 of the investments for $1,500 cash.
(c) Sold one-half of the property and equipment for $1,500 in cash.
(d) Declared and paid $800 in cash dividends to stockholders.
3. Compute ending balances in the T-accounts to determine amounts for the following on December 31, 2015:
Assets $________ = Liabilities $________ + Stockholders’ Equity $________
4. Calculate the current ratio at December 31, 2015. If the industry average for the current ratio is 1.50, what does your computation suggest to you about Higgins Company? Would you suggest that Higgins Company increase its short-term liabilities? Why or whynot?

  • CreatedJuly 01, 2014
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