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Determining Financial Effects of Transactions Affecting Current Liabilities with Discussion of Cash Flow Effects Group 3  Heather  Daniel  Jason  North.

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Presentation on theme: "Determining Financial Effects of Transactions Affecting Current Liabilities with Discussion of Cash Flow Effects Group 3  Heather  Daniel  Jason  North."— Presentation transcript:

1 Determining Financial Effects of Transactions Affecting Current Liabilities with Discussion of Cash Flow Effects Group 3  Heather  Daniel  Jason  North  Lewis P9-3 Page 502

2 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.

3 Transactions from P9-2 Jan. 8Purchased merchandise for resale on account at an invoice cost of $25,000; assume periodic inventory system. Jan. 17Paid January 8 invoice. Apr. 1Borrowed $40,000 from National Bank for general use; executed a 12-month, 12 percent interest-bearing not payable. June 3Purchased merchandise for resale on account at an invoice cost of $18,000. July 5Paid June 3 invoice. Aug. 1Rented a small office in a building owned by the company and collected six months’ rent in advance amounting to $5,100. Dec. 20Received a $500 deposit from a customer as a guarantee to return a large trailer “borrowed” for 30 days. Dec. 31Determined wages of $10,000 earned but not yet paid on December 31

4 January 8 Purchased merchandise for resale on account at an invoice cost of $25,000; assume periodic inventory system. DateAssets=Liabilities+Stockholder’s Equity Jan. 825,000 NE Merchandise (+A)$25,000 Accounts Payable (+L)$25,000 Current Ratio: Decrease Cash Flow: Same  Req.1  Req.2  Req.3

5 January 17 Paid January 8 invoice. DateAssets=Liabilities+Stockholder’s Equity Jan. 17(25,000) NE Accounts Payable (–L) $25,000 Cash (–A) $25,000 Current Ratio: Increase Cash Flow: Decrease  Req.1  Req.2  Req.3

6 April 1 Borrowed $40,000 from National Bank for general use; executed a 12- month, 12 percent interest-bearing not payable. DateAssets=Liabilities+Stockholder’s Equity April 140,000 NE Cash (+A) $40,000 Note Payable (+L)$40,000 Current Ratio: Decrease Cash Flow: Same—this is a financing activity—no effect on operating activity  Req.1  Req.2  Req.3

7 June 3 Purchased merchandise for resale on account at an invoice cost of $18,000. DateAssets=Liabilities+Stockholder’s Equity June 318,000 NE Merchandise (+A)$18,000 Accounts Payable $(+L)$18,000 Current Ratio: Decrease Cash Flow: Same  Req.1  Req.2  Req.3

8 July 5 Paid June 3 invoice. DateAssets=Liabilities+Stockholder’s Equity July 5($18,000)(18,000)NE Accounts Payable (–L)$18,000 Cash $(–A)$18,000 Current Ratio: Increase Cash Flow: Decrease  Req.1  Req.2  Req.3

9 August 1 Rented a small office in a building owned by the company and collected six months’ rent in advance amounting to $5,100. DateAssets=Liabilities+Stockholder’s Equity Aug. 15,100NE5,100 Cash (+A)$5,100 Rent Revenue (+R, +SE) $5,100 Current Ratio: Increase Cash Flow: Increase  Req.1  Req.2  Req.3

10 December 20 Received a $500 deposit from a customer as a guarantee to return a large trailer “borrowed” for 30 days. DateAssets=Liabilities+Stockholder’s Equity Dec NE Cash (+A)$500 Customer Deposit (+L)$500 Current Ratio: Decrease Cash Flow: Increase  Req.1  Req.2  Req.3

11 December 31 Determined wages of $10,000 earned but not yet paid on December 31 DateAssets=Liabilities+Stockholder’s Equity Dec. 31NE10,000 Wages Expense (+E, -SE)$10,000 Wages Payable (+L)$10,000 Current Ratio: Decrease Cash Flow: Same  Req.1  Req.2  Req.3


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