Reference no: EM13256606

 

Recording Transactions (in a Journal and T-Accounts),Preparing and

Interpreting the Balance Sheet

Patrie Plastics Company (PPC) has been operating for threeyears. The December 31, 2005, account balances are:

Cash $ 35,000                                   Other assets $ 5,000

Accounts receivable 5,000                  Accounts payable 37,000

Inventory 40,000                                Notes payable (due 2008) 80,000

Notes receivable 2,000                       Contributed capital 150,000

Equipment 80,000                              Retained earnings 50,000

Factory building 150,000

During the year 2006, the company had the followingsummarized activities:

a. Purchased equipment that cost $30,000; paid $10,000cash and signed a two-year note for the balance.

b. Issued an additional 2,000 shares of stock for$20,000 cash.

c. Lent $12,000 to a supplier who signed a six-monthnote.

d. Borrowed $20,000 cash from a local bank, payableJune 30, 2008.

e. Purchased another asset" for $6,000 cash.

f. Built an addition to the factory for $42,000; paid$15,000 in cash and signed a three-year note for the balance.

g. Hired a new president on the last day of the year.The contract was for $85,000 for each full year worked.

h. Returned $2,000 of defective equipment to themanufacturer, receiving a cash refund.

Required:

1. Prepare journal entries to recordtransactions a-h.

2. Create T-accounts for each of the accountson the balance sheet and enter the balances at the end of 2005 asbeginning balances on January 1, 2006.

3. Enter the effects of the transactions inT-accounts (including referencing) and determine the December 31,2006, balances.

4. Explain your response to eventg.

5. Prepare a classified balance sheet at December 31, 2006.

6. As of December 31, 2006, has the financingfor PPC's investment in assets primarily come fromliabilities or stockholders' equity?