Chapter 2 Problem B2-3 (Modified)

PB2-3 Recording Transactions (in a Journal and T-Accounts); Preparing and Interpreting the Balance

Sheet (LO 2-2, 2-3, 2-4, 2-5 and a little Chapter 1)

Starbuck$ is a coffee company a big coffee company. During a 10-year period, the number of Starbucks locations grew from 165 to over 8,500 stores in 50 countries. The following is adapted from Starbuckss annual report for the year ended September 30, 2017, and dollars are reported in millions.

Accounts Payable	$ 4,110		Inventory	$ 1,110
Accounts Receivable	560		Notes Payable	1,660
Cash	2,560		Prepaid Rent	570
Common Stock	350		Retained Earnings	4,140
Equipment	3,220		Salary and Wages Payable	1,270
Intangible Assets	2,850		Short-term Investments	660

Assume the following events occurred in the following quarter, which ended December 31, 2017. Dollars are in millions.

a.Paid $1,000 cash for additional intangible assets.

b.Issued additional shares of common stock for $10,000 in cash.

c.Purchased equipment; paid $4,000 in cash and signed additional long-term loans for $9,500.

d.Paid $800 cash for salaries and wages owed at September 30.

e.Conducted negotiations to purchase a coffee farm, which is expected to cost $8,400.

Required:

1.Analyze transactions (a)-(e) to determine their effects on the accounting equation. Once you have determined the effects on the accounting equation prepare a journal entry (Hint debits first and credits second). Use the format shown below.

2.Post your journal entries in Part 1 above to the T-Accounts. Use the format shown below.

3.Carryforward account balances from Part 2 to the worksheet for Part 3 show account balances, indicated account type (i.e. asset, liability, equity, revenue or expense), does the account have a debit or credit balance and which financial statement does this account appear on (i.e. Income Statement, Statement of Retained Earnings or Balance Sheet)?

4.Prepare a Trial Balance at 12/31/2017.

5.Prepare an Income Statement, Statement of Retained Earnings and a classified Balance Sheet.

6.What was the source of the companys financing Debt or Equity show your work?

7.Prepare the Current Ratio and the Quick Ratio (aka Acid Test). Are the ratios good or bad? What standard did you use?