Problem 2 - 1

a) 55,000
b) 25,000
c) 70,000
d) 73,000
e) 1.40
Problem 2 - 2
Current assets = 1,486,000
Fixed assets = 1,187,000
Investments = 320,000
Hence, total assets = 2,993,000
current liabilities = 473,000
Total liabilities = 900,000
Owners' equity = 1,620,000
=> retained earnings 620,000
Problem 2 - 3
1) Both cash and capital stock up by $100,000
2) Bonds payable down by 25000; capital stock up by 25000. No change in assets.
3) Retained Earnings (depreciation) down by $8500; Accumulated depreciation on plant & machinery up by $8500
4) cash balance down by $15,900. Inventory up by $15,900. No change in liabilities and the OE
5) Inventory up by $9400; Accounts payable up by $9400. No change in OE.
6) Inventory down by $4500 but receivables up by $7200. Hence Asset balance up by $2700. Retained earnings will be up by $2700. No change in liabilities.
7) Receivables down by $3500 and the cash up by $3500. No change in liabilities and the OE.
8) When dividends are declared, dividends payable goes up by $3000. Retained earnings will be down by $3000. No change in assets.
9) When dividends are paid, both the case and the dividends payable goes down by $3000. No change in owners' equity.
10) No effect at all on assets, liabilities and owners' equity.
Problem 2 - 4
(a) and (c) 1-Jun 30-Jun
Total assets 100,000 155,600
Liabilities 0 50,000
Capital - Carson 50,000 51,550
Capital - Legatt 50,000 54,050
b) Carson Legatt
Capital - June 1 50,000 50,000
Additions (Profits distributed) 7,750 7,750
Withdrawals -6,200 -3,700
Capital - June 30 51,550 54,050
Problem 2 - 5
Date Cash Receivable Inventory Land Prepaid Accounts
insurance payable
01-Jan-___ 25,000 0 50,000 0
31-Jan-___ 12,500 3,400 46,500 20,000 2,800 7,000
Problem 2 - 6
a) Current ratio = current assets / current liabilities = 12500 / 8500 = 1.47059
b) It is a measure of the level of liquidity of a firm.
Indicates an entitys ability to meet its current obligations.
Retained Earnings (depreciation) down by $8500; Accumulated depreciation on plant & machinery up by $8500
cash balance down by $15,900. Inventory up by $15,900. No change in liabilities and the OE
Inventory down by $4500 but receivables up by $7200. Hence Asset balance up by $2700. Retained earnings will be up by $2700. No change in liabilities.
Receivables down by $3500 and the cash up by $3500. No change in liabilities and the OE.
When dividends are declared, dividends payable goes up by $3000. Retained earnings will be down by $3000. No change in assets.
When dividends are paid, both the case and the dividends payable goes down by $3000. No change in owners' equity.
Notes Capital Retained 01-Jan-___ 31-Jan-___
payable Earnings
20,000 55,000 Cash 25,000 12,500
20,000 55,000 3,200 Receivable 0 3,400
Inventory 50,000 46,500
Land 0 20,000
Prepaid insurance 0 2,800
Total assets 75,000 85,200
Accounts payable 7,000
Notes payable 20,000 20,000
Capital 55,000 55,000
Retained earnings 0 3,200
Liabilities and OE 75,000 85,200
Balance sheet as on