Chapter 2 Set B Exercises Libby 7e

E2-1B (similar to E2-2) Identifying Account Titles The following are independent situations for Lamar Company. a. Lamar Company is formed and sells 200 shares of stock for $15 per share to investors. b. Lamar Company purchases for $1 !000 cash a new delivery truck that has a list! or sticker! price of $22!000. c. " children#s clothing retailer orders 50 new display stands from Lamar Company for $$00 each for future delivery. d. Lamar Company orders and receives 12 personal computers for office use for which it signs a note promising to pay $$5!000 within three months. e. " construction company signs a contract to %uild a new $&00!000 warehouse for Lamar Company. "t the signing! Lamar Company writes a check for $50!000 to the construction company as the initial payment for the construction 'receiving construction in progress(. "nswer from the standpoint of Lamar Company. f. Lamar Company purchases a copyright 'an intangi%le asset( for $)0!000 cash. g. Lamar Company pays stockholders a $150!000 cash dividend. h. Lamar Company purchases a piece of land for $150!000 cash. "n appraiser for the %uyer valued the land at $1)5!000. i. Lamar Company ac*uires the patent 'an intangi%le asset(! paying $+00!000 cash and signing a $500!000 note paya%le due in one year. j. ,or this event only! assume that Lamar Company is a sole proprietorship 'one owner(- its owner %uys a car for $21!000 for personal use. "nswer from the company#s point of view. k. Lamar Company purchases 200 shares of "pple .nc. common stock as an investment for $5!000 cash. l. Lamar Company %orrows $10!000 from a local %ank and signs a si/0month note for the loan. m. Lamar Company pays $2!500 principal on its note paya%le 'ignore interest(. Required: 1. .ndicate the appropriate account titles on Lamar Company#s %ooks! if any! affected in each of the preceding events. Consider what is received and what is given. 2. "t what amount would you record the truck in 'b(1 The land in 'h(1 2hat measurement principle are you applying1 $. ,or 'j(! what accounting concept did you apply1 E2-2B (similar to E2-3) Classifying Accounts and Their Usual Balances "s descri%ed in a recent annual report! Tech3hone provides wireless voice and data services across one of the most e/tensive wireless networks in the 4.5. The following are accounts from a recent %alance sheet for Tech3hone. '1( Contri%uted Capital '2( 3repaid 6/penses '$( Ta/es 3aya%le '7( 8etained earnings '5( "ccount 8eceiva%le '+( Long0Term 9e%t '&( 5hort term investments ')( "ccounts 3aya%le ' ( 3lant! 3roperty! and 6*uipment '10( Long0Term .nvestments
!2

!2" #

Required: ,or each account! indicate whether the account is classified as a current asset 'C"(! noncurrent asset ':C"(! current lia%ility 'CL(! noncurrent lia%ility ':CL(! or stockholders# e*uity '56(! and whether the account usually has a de%it or credit %alance. E2-3B (similar to E2-#) $etermining %inancial &tatement Effects of &e'eral Transactions The following events occurred for ;organ Company< a. 8eceived investment of $52!000 cash %y organi=ers and distri%uted stock to them. b . 3urchased $1)!000 of land- paid $$!000 in cash and signed a mortgage note for the %alance. c. 3urchased $7!000 of e*uipment! paying $500 in cash and signing a note for the rest. d. >orrowed $10!000 cash from a %ank. e. Loaned $&00 to an employee who signed a note.
!3

Required: ,or each of the events (a) through (e) perform transaction analysis and indicate the account! amount! and direction of the effect '? for increase and for decrease( on the accounting e*uation. Check that the accounting e*uation remains in %alance after each transaction. 4se the following headings< E'ent Assets ( ia)ilities * &toc+holders, E-uity E2-#B (similar to E2-.) $etermining %inancial &tatement Effects of &e'eral Transactions Top! .nc! is a leading manufacturer of athletic shoes and sports apparel. The following activities occurred during a recent year. The amounts are rounded to millions of dollars. a. 3urchased additional %uildings for $272 and e*uipment for $2&.$- paid $27.$ in cash and signed a long0term note for the rest. b. 9eclared $ 5.2 in dividends to %e paid in the following year. c. 3urchased additional short0term investments for $2!&0 .2 cash. d. 5everal Top investors sold their own stock to other investors on the stock e/change for $$5. e. .ssued $1$5.7 in additional stock for cash. f . 5old $7!210.0 in short0term investments for cash. Required: ,or each of these events (a) through (f), perform transaction analysis and indicate the account! amount! and direction of the effect '? for increase and for decrease( on the accounting e*uation. Check that the accounting e*uation remains in %alance after each transaction. 4se the following headings< E'ent Assets ( ia)ilities * &toc+holders, E-uity E2-.B (similar to E2-/) 8efer to 62@$>. 0ecording In'esting and %inancing Acti'ities
!# !3

Required: ,or each of the events in 62@$>! prepare Aournal entries! checking that de%its e*ual credits. E2-/B (similar to E2-1) 8efer to 62@7>. 0ecording In'esting and %inancing Acti'ities
!#

Required: ,or each of the events in 62@7>! prepare Aournal entries! checking that de%its e*ual credits.
!# E2-1B (similar to E-2) Analy3ing the Effects of Transactions in T-Accounts Cote 5ervice Company! .nc.! was organi=ed %y 3. Cote and five other investors. The following activities occurred during the year< a. 8eceived $$1!500 cash from the investors- each was issued &00 shares of capital stock. b . 3urchased e*uipment for use in the %usiness at a cost of $$+!000- one0fourth was paid in cash and the company signed a note for the %alance 'due in si/ months(. c. 5igned an agreement with a cleaning service to pay it $+0 per week for cleaning the corporate offices.

d. 8eceived an additional contri%ution from investors who provided $)!000 in cash and land valued at $2+!000 in e/change for stock in the company. e. Loaned $$!200 to one of the investors who signed a note due in si/ months. f. 3. Cote %orrowed $20!000 for personal use from a local %ank! signing a one0year note. Required: 1. Create T0accounts for the following accounts< Cash! :ote 8eceiva%le! 6*uipment! Land! :ote 3aya%le! and Contri%uted Capital. >eginning %alances are =ero. ,or each of the preceding transactions! record the effects of the transaction in the appropriate T0accounts. .nclude appropriate references and totals for each T0account. 2. 4sing the final %alances in the T0accounts! fill in the following amounts for the accounting e*uation< "ssets $ BBBBBBBC Lia%ilities $BBBBBBB ? 5tockholders# 6*uity $BBBBBBB E2-2B (similar to E2-11) 0ecording 4ournal Entries Dackson Corporation was organi=ed on ;ay 1! 2011. The following events occurred during the first month. a. 8eceived $&2!000 cash from the five investors who organi=ed Dackson Corporation. b. Erdered store fi/tures costing $1)!000. c. >orrowed $12!000 cash and signed a note due in two years. d. 3urchased $15!000 in e*uipment! paying $2!500 in cash and signing a si/0month note for the %alance. e. Loaned $2!000 to an employee who signed a note to repay the loan in three months. f. 8eceived and paid for the store fi/tures ordered in 'b(.
!#

Required: 3repare Aournal entries for each transaction. '8emem%er that de%its go on top and credits are indented on the %ottom( >e sure to use appropriate references and categori=e each account as an asset '"(! lia%ility 'L(! or stockholders# e*uity '56(. .f a transaction does not re*uire a Aournal entry! e/plain the reason.
!# E2-5B (similar to E2-12) 0ecording 4ournal Entries Ciao Froup! head*uartered in 8ome! .taly! manufactures furniture. ,inancial information is reported in the euro 'G( monetary unit using .nternational ,inancial 8eporting 5tandards as applica%le to the 6uropean 4nion. The following transactions were adapted from the annual report of the Ciao Froup- amounts are in millions of 6uros. a. 9eclared G & in dividends to %e paid ne/t month. b. Erdered G 1!0)) in e*uipment. c. 3aid G $00 in dividends declared in prior months. d. >orrowed G $!$)5 in cash from %anks. e. 5old e*uipment at its cost of G1 $for cash. f . 8eceived the e*uipment ordered in event 'b(! paying G &)0 in cash and signing a note for the %alance. g. 3urchased short0term investments for G 1!275 cash.

Required: 3repare Aournal entries for each transaction. >e sure to use appropriate references and categori=e each account as an asset '"(! lia%ility 'L(! or stockholders# e*uity '56(. .f a transaction does not re*uire a Aournal entry! e/plain the reason.

E2-16B (similar to E2-13) Analy3ing the Effects of Transactions Using T-Accounts and Inter7reting the !#" . Current 0atio as a 8anager of the Com7any 9elta Company has %een operating for one year '2012(. Hou are a mem%er of the management team investigating e/pansion ideas that will re*uire %orrowing funds from %anks. "t the start of 201$! 9elta T0account %alances were as follows<
Assets: Cash +!500 Liabilities: &hort-Term In'estments 2!$00 &hort-Term :otes 9aya)le 1! 00 Stockholders Equity: Contri)uted Ca7ital )!$00 9ro7erty and E-ui7ment 7!&00 ong-Term :otes 9aya)le 1!$00 0etained Earnings 2!000

Required: 1. 4sing the data from these T0"ccounts! determine the amounts for the following on Danuary 1! 201$< "ssets $ BBBBBBBC Lia%ilities $BBBBBBB ? 5tockholders# 6*uity $BBBBBBB 2. 6nter the following 201$ transactions in the T0accounts< 'a( >orrowed $10!000 from a local %ank! signing a note due in five years. 'b( 5old $1!$00 of the investments for $1!$00 cash. 'c( 5old one0half of the property and e*uipment for $2!$50 in cash. ' d ( 3aid $700 cash dividends to stockholders. $. Compute ending %alances in the T0accounts to determine amounts for the following on 9ecem%er $1! 201$< "ssets $ BBBBBBBC Lia%ilities $BBBBBBB ? 5tockholders# 6*uity $BBBBBBB 7. Calculate the current ratio at 9ecem%er $1! 201$. .f the industry average for the current ratio is 7.50! what does your computation suggest to you a%out 9elta Company1 2ould you suggest that 9elta Company increase its short0term lia%ilities1 2hy or why not1 E2-11B (similar to E2-11) Inferring Ty7ical In'esting and %inancing Acti'ities in Accounts The following T0accounts indicate the effects of normal %usiness transactions<
1I1 12I$1 E-ui7ment 500 250 1 100 1I1 12I$1 :otes 0ecei'a)le 150 1 225 1&0 :otes 9aya)le 100 1I1 1 1&0 1+0 12I$1 !#

Required: 1. 9escri%e the typical investing and financing transactions that affect each T0"ccount. That is! what economic events occur to make each of these accounts increase and decrease1 2. ,or each T0account! compute the missing amounts.