Injection Plastics Company has been operating for three years At
Injection Plastics Company has been operating for three years. At December 31, 2014, the accounting records reflected the following:
During the year 2015, the following summarized transactions were completed:
a. Purchased equipment that cost $ 18,000; paid $ 6,000 cash and signed a one-year note for the balance.
b. Issued 2,000 additional shares for $ 12,000 cash.
c. Lent $ 7,000 to a manager, who signed a two-year note.
d. Purchased short-term investments for $ 9,000 in cash.
e. Paid $ 5,000 on the note in transaction (a).
f. Borrowed $ 12,000 cash on December 31, 2015, from the bank and signed a note, payable June 30, 2016.
g. Purchased a patent (an intangible asset) for $ 3,000 cash.
h. Built an addition to the factory for $ 25,000; paid $ 9,000 in cash and signed a three-year note for the balance.
i. Hired a new president at the end of the year. The contract was for $ 85,000 per year plus options to purchase company shares at a set price based on company performance.
j. Returned defective equipment to the manufacturer, receiving a cash refund of $ 1,000.
1. Create a T-account for each of the accounts on the statement of financial position and enter the balances at the end of 2014 as beginning balances for 2015.
2. Record each of the transactions for 2015 in a T-account (including referencing) and determine the ending balances.
3. Explain your response to transaction (i).
4. Prepare a classified statement of financial position at December 31, 2015.
5. Compute the current ratio at December 31, 2015. What does this ratio suggest about Injection Plastics Company?
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