Chapter 2 Investing and Financing Decisions and the Accounting System 1 For each account select whether the account is usually classified as a current asset CA noncurrent asset NCA current liability CL noncurrent liability NCL or stockholders equity SE and whether the account usually has a debit or credit balance Financial Statement Items Balance Sheet Categorization Debit or Credit 1 2 3 4 5 6 7 8 9 10 Accounts Receivable Retained Earnings Taxes Payable Prepaid Expenses Common Stock Long Term Investments Plant Property and Equipment Accounts Payable Short Term Investments Long Term Debt 2 Nathanson Corporation was organized on May 1 2014 The following events occurred during the first month Prepare journal entries for each transaction a Received 70 000 cash from the five investors who organized Nathanson Corporation Each investor received 100 shares of 10 par value common stock Description Debit Credit b Ordered store fixtures costing 15 000 Description Debit Credit c Borrowed 18 000 cash and signed a note due in two years Description Debit Credit d Purchased 11 000 of equipment paying 1 500 in cash and signing a six month note for the balance Description Debit Credit e Lent 2 000 to an employee who signed a note to repay the loan in three months Description Debit Credit f Received and paid for the store fixtures ordered in b Description Debit Credit 1 3 BMW Group headquartered in Munich Germany manufactures several automotive brands including BMW Group MINI and Rolls Royce Financial information is reported in the euro monetary unit using International Financial Reporting Standards IFRS as applicable to the European Union The following activities were adapted from the annual report of the BMW Group amounts are in millions of euros a Declared 1 508 in dividends to be paid next month Description Debit Credit b Ordered 2 598 of equipment Description Debit Credit c Paid 852 in dividends declared in prior months Description Debit Credit d Borrowed 5 899 in cash from banks Description Debit Credit e Sold equipment at its cost of 53 for cash Description Debit Credit f Received the equipment ordered in event b paying 2 250 in cash and signing a note for the balance Description Debit Credit g Purchased investments for 2 616 cash Description Debit Credit 2 4 Granger Service Company Inc was organized by Ted Granger and five other investors The following activities occurred during the year a Received 70 000 cash from the investors each was issued 8 400 shares of capital stock with a par value of 0 10 per share b Purchased equipment for use in the business at a cost of 18 000 one fourth was paid in cash and the company signed a note for the balance due in six months c Signed an agreement with a cleaning service to pay 120 per week for cleaning the corporate offices next year d Received an additional contribution from investors who provided 3 000 in cash and land valued at 15 000 in exchange for 1 000 shares of stock in the company e Lent 2 500 to one of the investors who signed a note due in six months f Ted Granger borrowed 7 000 for personal use from a local bank signing a one year note Create T accounts for the following accounts Cash Notes Receivable Equipment Land Notes Payable Common Stock and Additional Paid in Capital Beginning balances are 0 For each of the preceding transactions record the effects of the transaction in the appropriate T accounts Include good referencing and totals for each T account Cash Notes Receivable Beg bal End bal Beg bal End bal Beg bal End bal Equipment Land Notes Payable Common Stock Additional P I C Beg bal End bal Beg bal End bal Beg bal End bal Beg bal End bal 5 Using the balances in the T accounts fill in the following amounts for the accounting equation 3 6 Dell Inc headquartered in Austin Texas is the global leader in selling computer products and services The following is Dell s simplified balance sheet from a recent year fiscal year ending on Friday nearest January 31 Prepare a journal entry for each transaction a Borrowed 50 from banks due in two years Description Debit Credit b Lent 300 to affiliates who signed a six month note Description Debit Credit were long term and the rest were short term Description Debit Credit c Purchased additional investments for 13 000 cash one fifth d Purchased property plant and equipment paid 875 in cash and 1 410 with additional long term bank loans Debit Description Credit e Issued 1 000 additional shares of stock for 400 in cash Description Debit Credit f Sold short term investments costing 11 000 for 11 000 cash Description Debit Credit g Dell does not actually pay dividends it reinvests its earnings into the company for growth purposes Assume instead for this problem that Dell declared and paid 60 in dividends during 2012 Description Debit Credit 7 Create T accounts for each balance sheet account and include the February 3 2012 balances Post each journal entry to the appropriate T accounts Enter your answers in millions 4 Cash Short term Investments 5 Beg bal End bal Beg bal End bal Beg bal End bal Beg bal End bal Beg bal End bal Beg bal End bal Beg bal End bal Receivables and other assets Property plant and equipment Other current assets Inventories Long term investments Other Noncurrent Assets Accounts payable Other short term obligations Additional P I C Common stock Other Stockholders Equity items Retained earnings Beg bal End bal Beg bal End bal Beg bal End bal Beg bal End bal Beg bal End bal Beg bal End bal Beg bal End bal 8 Prepare a balance sheet from the T account ending balances for Dell at January 29 2013 based on these transactions 6 Dell inc Balance Sheet As of February 1 2013 Assets Liabilities Current assets Cash Short term investments Receivables and other assets Inventories Other current assets Total current assets Property plant and equipment Long term investments Other noncurrent assets Property plant and equipment Long term investments Other noncurrent assets Total assets Current liabilities Accounts payable Other short term obligations Total current liabilities Long term liabilities Total liabilities Stockholders Equity Stockholders equity Common stock Additional paid in capital Retained earnings Other stockholders equity items Total stockholders equity Total liabilities and stockholders equity Current ratio 1 20 Compute Dell s current ratio for 2012 year ending on February 1 2013 Round your answer to 2 decimal places Chapter 2 Investing and Financing Decisions and the Accounting System
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