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Chapter 4: Q14SE (page 220)

End of the Line Montana Refrigeration has these account balances at December 31, 2018: Notes Payable, long-term \( 9,200 Accounts Payable \) 3,600 Prepaid Rent 2,500 Accounts Receivable 6,600 Salaries Payable 2,600 Cash 3,500 Service Revenue 15,600 Depreciation Expense—Equip. 400 Office Supplies 1,300 Equipment 24,000 Accumulated Depreciation—Equip. 4,000 Common Stock 6,000 Advertising Expense 900 Rent Expense 1,800 Requirements 1. Calculate End of the Line Montana Refrigeration’s current ratio. 2. How much in current assets does End of the Line Montana Refrigeration have for every dollar of current liabilities that it owes?

Short Answer

Expert verified

(1)Current ratio equals to 2.24 times.

(2) $2.24

Step by step solution

01

Calculation of Current Ratio

Current ratio is calculated as follows:

CurrentRatio=PrepaidRent+OfficeSupplies+AccountsReceivable+CashSalariesPayable+AccountsPayable=$2,500+$1,300+$6,600+$3,500$2,600+$3,600=2.24

02

Explanation on Current Assets Per Dollar of Current Liabilities

The current ratio is 2.24 times, which indicates that current assets are 2.24 times current liabilities. This indicates that there is $2.24 of current assets for a single dollar of current liabilities.

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Most popular questions from this chapter

Lucas Architects recorded the following adjusting entries as of December 31: a. Service Revenue accrued, \(2,600. b. Unearned Revenue that has been earned, \)1,300. c. Office Supplies on hand, \(530. The balance of the Office Supplies account was \)880. d. Salaries owed to employees, \(600. e. One month of Prepaid Rent has expired, \)3,100. f. Depreciation on equipment, $1,075. Journalize any necessary reversing entries for Lucas Architects.

Murphy Delivery Service completed the following transactions during December 2018: Dec. 1 Murphy Delivery Service began operations by receiving \(13,000 cash and a truck with a fair value of \)9,000 from Russ Murphy. The business issued Murphy shares of common stock in exchange for this contribution. 1 Paid \(600 cash for a six-month insurance policy. The policy begins December 1. 4 Paid \)750 cash for office supplies. 12 Performed delivery services for a customer and received \(2,200 cash. 15 Completed a large delivery job, billed the customer, \)3,300, and received a promise to collect the \(3,300 within one week. 18 Paid employee salary, \)800. 20 Received \(7,000 cash for performing delivery services. 22 Collected \)2,200 in advance for delivery service to be performed later. 25 Collected \(3,300 cash from customer on account. 27 Purchased fuel for the truck, paying \)150 on account. (Credit Accounts Payable) 28 Performed delivery services on account, \(1,400. 29 Paid office rent, \)1,400, for the month of December. 30 Paid \(150 on account. 31 Cash dividends of \)2,500 were paid to stockholders. Requirements

1. Record each transaction in the journal using the following chart of accounts. Explanations are not required. Cash Retained Earnings Accounts Receivable Dividends Office Supplies Income Summary Prepaid Insurance Service Revenue Truck Salaries Expense Accumulated Depreciation—Truck Depreciation Expense—Truck Accounts Payable Insurance Expense Salaries Payable Fuel Expense Unearned Revenue Rent Expense Common Stock Supplies Expense

2. Post the transactions in the T-accounts.

3. Prepare an unadjusted trial balance as of December 31, 2018.

4. Prepare a worksheet as of December 31, 2018 (optional).

5. Journalize the adjusting entries using the following adjustment data and also by reviewing the journal entries prepared in Requirement 1. Post adjusting entries to the T-accounts. CHAPTER 4 Completing the Accounting Cycle 245 Adjustment data: a. Accrued Salaries Expense, \(800. b. Depreciation was recorded on the truck using the straight-line method. Assume a useful life of five years and a salvage value of \)3,000. c. Prepaid Insurance for the month has expired. d. Office Supplies on hand, \(450. e. Unearned Revenue earned during the month, \)700. f. Accrued Service Revenue, $450.

6. Prepare an adjusted trial balance as of December 31, 2018.

7. Prepare Murphy Delivery Service’s income statement and statement of retained earnings for the month ended December 31, 2018, and the classified balance sheet on that date. On the income statement, list expenses in decreasing order by amount—that is, the largest expense first, the smallest expense last.

8. Journalize the closing entries, and post to the T-accounts.

9. Prepare a post-closing trial balance as of December 31, 2018.

What does liquidity mean?

Identify two asset categories on the classified balance sheet, and give examples of each category.

For each account listed, identify the category in which it would appear on a classified balance sheet.

  1. Patents
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