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Solutions Chapter 2 – Set B Exercises – Libby 8e
E2–1B.
Req. 1
Received / Given(a) / Cash (A) / Contributed capital (SE)
(b) / Equipment (A) [or Delivery truck] / Cash (A)
(c) / No exchange transaction / —
(d) / Equipment (A) [or Computer equipment] / Note payable (L)
(e) / Building(A) [or Construction in progress] / Cash (A)
(f) / Intangibles (A) [or Copyright] / Cash (A)
(g) / Retained earnings (SE) [Received a reduction in the amount available for payment to stockholders] / Cash (A)
(h) / Land (A) / Cash (A)
(i) / Intangibles (A) [or Patents] / Cash (A) and Note payable (L)
(j) / No exchange transaction / —
(k) / Investments (A) / Cash (A)
(l) / Cash (A) / Short-term note payable (L)
(m) / Note payable (L) [Received a reduction in its promise to pay] / Cash (A)
Req. 2
The truck in (b) would be recorded as an asset of $19,000. The land in (h) would be recorded as an asset of $150,000. These are applications of the historical cost principle.
Req. 3
Since transaction (j) occurs between the owner and others, there is no effect on the business because of the separate-entity assumption.
E2–2B
Account / Balance Sheet Categorization / Debit or CreditBalance
(1) Contributed Capital / SE / Credit
(2) Prepaid Expenses / CA / Debit
(3) Taxes Payable / CL / Credit
(4) Retained Earnings / SE / Credit
(5) Accounts Receivable / CA / Debit
(6) Long-Term Debt / NCL / Credit
(7) Short-Term Investments / CA / Debit
(8) Accounts Payable / CL / Credit
(9) Plant, Property, and Equipment / NCA / Debit
(10) Long-Term Investments / NCA / Debit
E2–3B
Event / Assets / = / Liabilities / + / Stockholders’ Equitya. / Cash / +52,000 / Contributed capital / +52,000
b. / Land
Cash / +18,000
–3,000 / Mortgage note payable / +15,000
c. / Equipment
Cash / +4,000
-500 / Notes payable / +3,500
d. / Cash / +10,000 / Loan payable / +10,000
e. / Note receivable
Cash / +700
–700
E2–4B
Event / Assets / = / Liabilities / + / Stockholders’ Equitya. / Buildings
Equipment
Cash / +242.0
+27.3
– 24.3 / Notes payable (long-term) / +245
b. / Dividends payable / +95.2 / Retained earnings / –95.2
c. / Short-term Investments
Cash / +2,709.2
– 2,709.2
d. / No effect
e. / Cash+135.4 / Contributed Capital / +135.4
f. / Cash
Short-term Investments / +4,210.0
– 4,210.0
E2–5B
a. / Cash (+A)...... / 52,000Contributed capital (+SE)...... / 52,000
b. / Land (+A)...... / 18,000
Cash (A)...... / 3,000
Mortgage notes payable (+L) ...... / 15,000
c. / Equipment (+A)...... / 4,000
Cash (A)...... / 500
Notes payable (+L) ...... / 3,500
d. / Cash (+A)...... / 10,000
Note payable (+L)...... / 10,000
e. / Note receivable (+A) ......
Cash (A) ...... / 700 / 700
E2–6B
a. / Buildings (+A)...... / 242.0Equipment (+A) ...... / 27.3
Cash (A)...... / 24.3
Long-term note payable (+L) ...... / 245.0
b. / Retained earnings (SE)...... / 95.2
Dividends payable (+L)...... / 95.2
c. / Short-term investments (+A)...... / 2,709.2
Cash (A)...... / 2,709.2
d.No journal entry required.
e. / Cash (+A) ...... / 135.4Contributed capital (+SE)...... / 135.4
f. / Cash (+A)...... / 4,210.0
Short-term investments (A)...... / 4,210.0
E2–7B
Req. 1
Cash / Note Receivable / EquipmentBeg. / 0 / Beg. / 0 / Beg. / 0
(a) / 31,500 / 9,000 / (b) / (e) / 3,200 / (b) / 36,000
(d) / 8,000 / 3,200 / (e)
27,300 / 3,200 / 36,000
Land / Note Payable / Contributed Capital
Beg. / 0 / 0 / Beg. / 0 / Beg.
(d) / 26,000 / 27,000 / (b) / 31,500 / (a)
34,000 / (d)
26,000 / 27,000 / 65,500
Req. 2
Assets $92,500= Liabilities $27,000+ Stockholders’ Equity $65,500
E2–8B
a. / Cash (+A)...... / 72,000Contributed capital (+SE)...... / 72,000
b. / No transaction has occurred because there has been no exchange or receipt of cash, goods, or services.
c. / Cash (+A)...... / 12,000
Notes payable (long-term) (+L)...... / 12,000
d. / Equipment (+A)...... / 15,000
Cash (A)...... / 2,500
Notes payable (short-term) (+L)...... / 12,500
e. / Notes receivable (short-term) (+A)...... / 2,000
Cash (A)...... / 2,000
f. / Store fixtures (+A)...... / 18,000
Cash (A)...... / 18,000
E2–9B
a. / Retained earnings (SE)...... / 79Dividends payable (+L)...... / 79
b.No transaction has occurred because there has been no exchange or receipt of cash, goods, or services.
c. / Dividends payable (L)...... / 300Cash (A)...... / 300
d. / Cash (+A)...... / 3,385
Notes payable (+L)...... / 3,385
e. / Cash (+A)...... / 193
Equipment (A)...... / 193
f. / Equipment (+A)...... / 1,088
Cash (A)...... / 780
Notes payable (+L) ...... / 308
g. / Short-term investments (+A)...... / 1,245
Cash (A)...... / 1,245
E2–10B
Req. 1
Assets $13,500= Liabilities $3,200+ Stockholders’ Equity $10,300
Req. 2
Cash / Short-Term Investments / Property & EquipmentBeg. / 6,500 / Beg. / 2,300 / Beg. / 4,700
(a) / 10,000 / 1,300 / (b) / 2,350 / (c)
(b) / 1,300
(c) / 2,350 / 400 / (d)
End. / 19,750 / End. / 1,000 / End. / 2,350
Short-Term
Notes Payable / Long-Term
Notes Payable
1,900 / Beg. / 1,300 / Beg.
10,000 / (a)
1,900 / End. / 11,300 / End.
Contributed Capital / Retained Earnings
8,300 / Beg. / 2,000 / Beg.
(d) / 400
8,300 / End. / 1,600 / End.
Req. 3
Assets $23,100= Liabilities $13,200+ Stockholders’ Equity $9,900
Req. 4
Current / = / Current Assets / = / $19,750+$1,000 / = / $20,750 / = / 10.92Ratio / Current Liabilities / $1,900 / $1,900
This ratio indicates that, for every $1 of current liabilities, Delta maintains $10.92 of current assets. Delta’s ratio is higher than the industry average of 4.50, indicating that Deltamaintains a lower level of short-term debt and has higher liquidity. However, maintaining such a high current ratio also suggests that the company may not be using its resources efficiently. Increasing short-term obligations would lower Delta’s current ratio, but this strategy alone would not help its efficiency. Delta should consider investing more of its cash in order to generate future returns.
E2–11B
Req. 1
Increases with… / Decreases with…Equipment / Purchases of equipment / Sales of equipment
Notes receivable / Additional loans to others / Collection of loans
Notes payable / Additional borrowings from creditors / Payments of debt
Req. 2
Equipment / Notes Receivable / Notes Payable1/1 / 500 / 1/1 / 150 / 100 / 1/1
250 / 650 / 245 / 225 / 110 / 170
12/31 / 100 / 12/31 / 170 / 160 / 12/31
Beginning balance / + / “+” / / “” / = / Ending balance
Equipment / $500 / + / 250 / / ? / = / $100
? / = / 650
Notes receivable / 150 / + / ? / / 225 / = / 170
? / = / 245
Notes payable / 100 / + / 170 / / ? / = / 160
? / = / 110
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