PresentationP9_3 Gro

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					  Determining Financial Effects of
   Transactions Affecting Current
Liabilities with Discussion of Cash
                       Flow Effects

 Group 3            P9-3 Page 502
 vHeather
 vDaniel
 vJason
 vNorth
 vLewis
  Using the transactions from P9-2,
  complete the following requirements.

1. For each transaction (including adjusting entries) listed in P9-2,
        indicate the effects (e.g., cash + or -), using the following
        schedule:

        Date     Assets = Liabilities + Stockholder’s Equity

2. For each transaction, state whether cash flow from operating
        activities is increased, decreased, or remains the same.

3. For each transaction, state whether the current ratio is increased,
        decreased, or remains the same.
   Transactions from P9-2
ü Jan. 8    Purchased merchandise for resale on account at an invoice cost
            of $25,000; assume periodic inventory system.
ü Jan. 17   Paid January 8 invoice.

ü Apr. 1    Borrowed $40,000 from National Bank for general use; executed
            a 12-month, 12 percent interest-bearing not payable.
ü June 3    Purchased merchandise for resale on account at an invoice cost
            of $18,000.
ü July 5    Paid June 3 invoice.

ü Aug. 1    Rented a small office in a building owned by the company and
            collected six months’ rent in advance amounting to $5,100.
ü Dec. 20   Received a $500 deposit from a customer as a guarantee to
            return a large trailer “borrowed” for 30 days.
ü Dec. 31   Determined wages of $10,000 earned but not yet paid on
            December 31
     January 8
   Purchased merchandise for resale on account at an invoice cost of
      $25,000; assume periodic inventory system.

v Req.1
   Merchandise (+A)                                     $25,000
          Accounts Payable (+L)                                    $25,000
     Date       Assets       =     Liabilities    +   Stockholder’s Equity
     Jan. 8     25,000              25,000                    NE


v Req.2
   Cash Flow: Same
v Req.3
   Current Ratio: Decrease
     January 17
   Paid January 8 invoice.


v Req.1
   Accounts Payable (–L)                           $25,000
           Cash (–A)                                          $25,000
      Date       Assets      =   Liabilities   +   Stockholder’s Equity
    Jan. 17     (25,000)         (25,000)                  NE


v Req.2
   Cash Flow: Decrease
v Req.3
   Current Ratio: Increase
      April 1
    Borrowed $40,000 from National Bank for general use; executed a 12-
       month, 12 percent interest-bearing not payable.

v Req.1
   Cash (+A)                                           $40,000
           Note Payable (+L)                                     $40,000
      Date       Assets       =     Liabilities   +   Stockholder’s Equity
     April 1     40,000              40,000                   NE


v Req.2
   Cash Flow: Same—this is a financing activity—no effect on operating
   activity
v Req.3
    Current Ratio: Decrease
     June 3
   Purchased merchandise for resale on account at an invoice cost of
      $18,000.

v Req.1
   Merchandise (+A)                                    $18,000
          Accounts Payable $(+L)                                 $18,000
     Date       Assets       =     Liabilities    +   Stockholder’s Equity
     June 3     18,000              18,000                    NE


v Req.2
   Cash Flow: Same
v Req.3
   Current Ratio: Decrease
     July 5
   Paid June 3 invoice.


v Req.1
   Accounts Payable (–L)                           $18,000
           Cash $(–A)                                         $18,000
      Date       Assets      =   Liabilities   +   Stockholder’s Equity
     July 5    ($18,000)         (18,000)                  NE


v Req.2
   Cash Flow: Decrease
v Req.3
   Current Ratio: Increase
     August 1
   Rented a small office in a building owned by the company and collected
      six months’ rent in advance amounting to $5,100.

v Req.1
   Cash (+A)                                           $5,100
           Rent Revenue (+R, +SE)                                $5,100
     Date       Assets       =      Liabilities   +   Stockholder’s Equity
     Aug. 1      5,100                 NE                    5,100


v Req.2
   Cash Flow: Increase
v Req.3
   Current Ratio: Increase
     December 20
   Received a $500 deposit from a customer as a guarantee to return a
      large trailer “borrowed” for 30 days.

v Req.1
   Cash (+A)                                          $500
           Customer Deposit (+L)                                $500
     Date       Assets       =     Liabilities   +   Stockholder’s Equity
    Dec. 20      500                  500                    NE


v Req.2
   Cash Flow: Increase
v Req.3
   Current Ratio: Decrease
     December 31
   Determined wages of $10,000 earned but not yet paid on December 31


v Req.1
   Wages Expense (+E, -SE)                          $10,000
          Wages Payable (+L)                                  $10,000
     Date       Assets       =   Liabilities   +   Stockholder’s Equity
    Dec. 31      NE               10,000                 10,000


v Req.2
   Cash Flow: Same
v Req.3
   Current Ratio: Decrease

				
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