MBA 503

Module Two Homework

Notes:

· Word-process your solutions within this template. Copy and paste tables from Excel as needed.

· Show all steps used in arriving at the final answers. Incomplete solutions will receive partial credit.

Problem 1

For the following accounts, classify as a current asset (CA), noncurrent asset (NCA), current liability (CL), noncurrent liability (NCL), or stockholders’ equity (SE). Indicate whether each account usually has a debit or credit balance.

Accounts Receivable

Retained Earnings

Taxes Payable

Prepaid Expenses

Contributed Capital

Long-Term Investments

Plant, Property, and Equipment

Accounts Payable

Short-Term Investments

Long-Term Debt

Problem 2

Suppose a company performs the following activities within a year. For each activity, perform transaction analysis and indicate the account, amount, and direction of the effect on the account equation. Use the following headings:

Assets = Liabilities + Stockholders’ Equity

The activities are shown below.

(a) Purchased new equipment costing $20,000, paying $14,000 in cash and signing a note for the rest

(b) Declared $11,000 in dividends to be paid the following year

(c) Sold $2,312 in short-term investments for cash

(d) Investors sold their own stock to other investors on the stock exchange for $121,000

(e) Issued $1,000 of additional common stock shares, and received cash from investors

Problem 3

Shown below are several transactions for a corporation and what accounts are affected. Using the given dollar amounts, explain in words the transaction that took place. Use the transactions to create a balance sheet.

(a) Cash = +$8,000, Contributed Capital = +$8,000

(b) Cash = +$42,000, Note payable (short-term) = + $42,000

(c) Cash = −$2,000, Equipment +$5,000, Note payable (short-term) = +$3,000

(d) Cash = −$6,000, Note receivable (short-term) = +6,000

(e) Cash = −$1,800, Supplies = +$1,800

Problem 4

Given below is the balance sheet for a company.

Balance Sheet (Millions of Dollars)

Assume the following transactions (in millions) during the remainder of the initial year.

(a) Borrowed $20 from banks due in two years

(b) Lent $170 to affiliates, who signed a six-month note

(c) Purchased additional investments for $6,000 cash; one-third were long term and the rest were short-term

(d) Purchased $1820 worth of property, plant, and equipment; paid $600 in cash and the remainder with additional long-term bank loans

(e) Issued additional shares of stock for $400 in cash

(f) Sold short-term investments costing $3,000 for $3,000 cash

(g) Declared and paid $13 in dividends during Year 1

Prepare a journal entry for each transaction. Then create T-accounts for each balance sheet account and include the new transactions. Post each journey entry to the appropriate T-accounts. Finally, create an updated balance sheet.

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