Problem 1-2: Johnson Company Financial Data
Account Amount
| Cash |
$9,000 |
| Investments (short-term) |
$4,000 |
| Accounts receivable |
$13,000 |
| Inventory |
$22,000 |
| Notes receivable (long-term) |
$1,000 |
| Equipment |
$48,000 |
| Factory building |
$90,000 |
| Intangibles |
$3,000 |
| Accounts payable |
$15,000 |
| Accrued liabilities payable |
$2,000 |
| Notes payable (short-term) |
$7,000 |
| Long-term notes payable |
$46,000 |
| Contributed capital |
$90,000 |
| Retained earnings |
$30,000 |
To complete this problem, you may wish to use the Excel template provided in the resources.
During the year 2013, Johnson Company had the following summarized activities:
- Purchased short-term investments for $10,000 cash.
- Lent $8,000 to a supplier who signed a three-year note.
- Purchased equipment that cost $28,000; paid $4,000 cash and signed a one-year note for the balance.
- Hired a new president at the end of the year. The contract was for $110,000 per year plus options to purchase company stock at a set price based on company performance.
- Issued an additional 1,000 shares of capital stock for $12,000 cash.
- Borrowed $20,000 cash from a local bank, payable in three months.
- Purchased a patent (an intangible asset) for $4,000 cash.
- Built an addition to the factory for $45,000; paid $10,000 in cash and signed a three-year note for the balance.
- Returned defective equipment to the manufacturer, receiving a cash refund of $1,000.
Using knowledge from prior courses, work experience, textbooks, or Internet sources, as well as the financial data provided above, complete the following five items:
- Create T-accounts for each of the accounts on a balance sheet and enter the balances at the end of 2012 as beginning balances for 2013. Prepare a trial balance for 12/31/12.
- Record each of the events for 2013 in T-accounts and determine the ending balances. For each recording (posting), include the identifying letter (a through i). Prepare a trial balance for 12/31/12.
- Explain why you did or did not record item d, the hiring of the president, in a T-account.
- Prepare a balance sheet at December 31, 2013. Classify the balance sheet as appropriate (into current assets, fixed assets, and so on).
- Compute the current ratio for 2013. Interpret this ratio as it applies to Johnson Company at December 31, 2013, as compared to December 31, 2012.