Reference no: EM132406982

Question : BEACON LUMBER, MONTH OF NOVEMBER TRANSACTIONS

Nov 4 On this day an entrepreneur (Investor #1) created the Beacon Lumber corporation and purchased 20,000 shares of its common stock for $20,000. The corporation will operate a lumberyard and building materials business in a medium sized city not far from your school. The business will prepare financial statements monthly.

Nov 4 Later in the day two other investors purchase shares. Investor #2 purchases 2,000 shares for $2,000 and investor #3 purchases 3,000 shares for $3,000.

Nov 4 Later that afternoon the lawyer who performed the incorporation submits a bill for $500 fee and $37 in expenses.

Nov 6 The investors (and, at present, the sole owners) of the Beacon Lumber Corporation elect three prominent businesspersons to the company's Board of Directors. The board will meet once every quarter to review operations and set overall policy for the company, but it will not be involved in the day to day operations. The company's founder is appointed CEO of the corporation. The board appoints a clerk-secretary.

Nov 15 An investor supplies 20 acres of land in exchange for stock and a mortgage note. The land has been appraised at $70,000 and the investor receives $15,000 shares of stock and a note with a face value of $55,000. The note requires Beacon to pay interest at the rate of 10% per year and the principal (face amount) is due in 5 years.

Nov 15 Investor #2 sells 500 shares of Beacon stock to a younger sister for $500. Think about this from the corporation's perspective.

Nov 17 Beacon agrees to rent a trailer which it will use as a temporary office. The rental cost, as determined by AZCO, the lessor, will be $200 per month. AZCO will pro-rate this month's rent, using a Nov18th start date. Beacon pays the rent. In the future, rent will be due the first of the month.

Beacon cannot receive a discount if the trailer is returned. Therefore, the lessor has determined that a performance obligation has been met on the first day of the month not at the end of the month. Hint - if lessor is recording revenue then the lessee, Beacon should be recording the expense not a prepaid asset. Round your entry to the nearest dollar.

Nov 17 Beacon applies for credit to the Big Wholesale Lumber Company (BWLC). Since Beacon is a brand-new business and has no history of operations the credit manager for the BWLC is at first reluctant to approve the request. Eventually, after heated discussions, she agrees to a $10,000 limit, provided that the company's ratio of Debt to Total Assets does not rise above .70, and that its Current Ratio does not fall below 2.45. Nov 17 Beacon purchases 20,000 board feet (bd. ft.) of framing lumber from BWLC at a cost of $.90/bd. ft., (ninety cents per board foot). After reaching its credit limit, it paid cash for the balance of the purchase.

Nov 17 Beacon hires an Office Manager and two-yard personnel. The yard personnel will each earn $12.00 per hour and the manager will earn $17.00 per hour. All employees will work an eight-hour day.

Nov 18 The Solid Construction Company purchases 3,000 bd. ft. of lumber from Beacon on account for $4,800.00. (Beacon uses the perpetual method of inventory is used.) Nov 18 The Strong Construction Company purchases 6,000 bd. ft. of lumber on account for $9,600.00.

Nov 18 The Reliable Construction Company purchases 4,000 bd. ft. of lumber on account for $6,400.00. Nov 20 The Nocturnal Departures Home Improvement Co. applies for a trade credit Account with Beacon. Nocturnal provides the following financial information to Beacon in its credit application: Cash 12,000 Short-term Liabilities 2,000,  Total Assets 15,500 Total Liabilities 5,000.

Based upon the preceding,

What is the ratio of cash to short-term liabilities for Nocturnal?

What is the ratio of Assets to Total Liabilities?

Using the same credit standards that BWLC applied to Beacon, does it appear that Nocturnal meets Beacon's standards for trade credit?