Current Ratio of Levy and Parcells - Assignment Example

Part-1 (journal) Current Liabilities is a function of Current Assets. A ratio which uses to assess the stance meeting the short term obligation is called Current Ratio. Current ratio use current assets and current liabilities. In finance, current means anything which has a life of one year or below one year. Organizations which meet with the short term obligations have wonderful track records. The psychological level of current ratio is 1 and the organization which scores above that number would be regarded as those organizations which meet with their short term obligations wonderfully (Ackerman, 2002). Current Ratio is an indication that the organization has the ability to tackle with its short term obligations. Due to the CR, an analyst get an idea that the organization has the tame to meet with it short term financial promises. Current means the financial promises which have a life of one or less than 1 year. From the above mentioned table and graph, it is very clear that The company is among those companies which meets with its short term financial promises pertinently. Throughout the analytical period, the CR of the company remained above the psychological level of 1 which is showing that the company is proactive towards meeting its short term financial promises. The CR of The company was way above the psychological level of 1 in the fiscal year 2001 which increased for two consecutive years by 38 and 15 basis points FY 2002 and 2003 respectively because of the augmentation in the current asset’s figures by 4.02% and 2.54% respectively. High fluctuation among the figures of CR, Current Assets and Current Liabilities has been envisaged throughout the selected analytical period. All of these three things came in positive and negative after every single or pair of years. The CR of the company remained in the congestion band from 1:5 to 2:8 except for one year in which the CR of the company touched the record level of 3:5 because of the increment in total current assets of the company by 66.50% in the fiscal year 2006. The average CR of The company is 2:26 which is way above the psychological level of 1 which is showing that the company always meets with its short term obligation plausibly. This provision can be extremely momentous from the standpoint of the company and its shareholders. Its time to move towards to second liquidity ratio which is quick ratio. Part-2 (Exercise Work) Liability 1. Partner investments; journal entries. The LP partnership was formed on January 1, 19X7, by investments from Bill Levy and Marv Parcells. Levy contributed $30,000 cash and $80,000 of land. Parcells contributed cash of $50,000 and equipment with a value of $20,000. a. Prepare the journal entries needed to record the investments of Levy and Parcells. Journal Entries Debit Cash $ 30,000 Land $ 80,000 Credit Capital (Levy) $ 110,000 Debit Cash $ 50,000 Equipment $ 20,000 Credit Capital (Parcells) $ 70,000 2. Payroll accounting. Assume that the following tax rates and payroll information pertain to Brookhaven Publishing: Social Security taxes: 6% on the first $55,000 earned Medicare taxes: 1.5% on the first $130,000 earned Federal income taxes withheld from wages: $7,500 State income taxes: 5% of gross earnings Insurance withholdings: 1% of gross earnings State unemployment taxes: 5.4% on the first $7,000 earned Federal unemployment taxes: 0.8% on the first $7,000 earned The company incurred a salary expense of $50,000 during February. All employees had earned less than $5,000 by month-end. a. Prepare the necessary entry to record Brookhaven’s February payroll. The entry will include deductions for the following: Social Security taxes Medicare taxes Federal income taxes withheld State income taxes Insurance withholdings Journal Entry Salary Expense (Debit) $ 50,000 Cash (Credit) $ 50,000 Social Security Tax Expense $ 3,000 Cash $ 3,000 Medicare Tax Expense $ 750 Cash $ 750 State Income Tax Expense $ 2,500 Cash $ 2,500 Insurance Expense $ 500 Cash $ 500 b. Prepare the journal entry to record Brookhaven’s payroll tax expense. The entry will include the following: Matching Social Security taxes Matching Medicare taxes State unemployment taxes Federal unemployment taxes Total Salary Expense = $ 50,000 Total Taxes = $ 6,750 Salary Expense (Debit) $ 50,000 Tax (Debit) $ 6,750 Cash (Credit) $ 56,750 3. Current liabilities: entries and disclosure. A review of selected financial activities of Visconti’s during 20XX disclosed the following: 12/1 Borrowed $20,000 from the First City Bank by signing a 3- month, 15% note payable. Interest and principal are due at maturity. 2/10 Established a warranty liability for the XY-80, a new product. Sales are expected to total 1,000 units during the month. Past experience with similar products indicates that 2% of the units will require repair, with warranty costs averaging $27 per unit. 12/22 Purchased $16,000 of merchandise on account from Oregon Company, terms 2/10, n/30. 12/26 Borrowed $5,000 from First City Bank; signed a note payable due in 60 days. 12/31 Repaired six XY-80s during the month at a total cost of $162. 12/31 Accrued 3 days of salaries at a total cost of $1,400. Instructions a. Prepare journal entries to record the transactions. b. Prepare adjusting entries on October 31 to record accrued interest. c. Prepare the Current Liability section of Red Bank’s balance sheet as of October 31. Assume that the Accounts Payable account totals $203,600 on this date. a) 12/1 Cash $ 20,000 Account Payable (City Bank) $ 20,000 Cash $ 27,000 Net off Sales $ 540 Revenue $ 27,540 Merchandise $ 15,680 Discount $ 320 Account Payable (origon) $ 15,680 Cash $ 5,000 Account Payable (City Bank) $ 5,000 Repair Expense (X-80) $ 162 Cash $ 162 Accrued Salaries $ 1,400 Salaries Payable $ 1,400 b) Interest = 1,400 * 6% = $ 84 Interest Expense $ 84 Accrued Interest $ 84 c) Current Liabilities = $ 41,000 4. Issuance of stock: organization costs. Snowbound Corporation was incorporated in July. The firm’s charter authorized the sale of 200,000 shares of $10 par-value common stock. The following transactions occurred during the year: Instructions a. Prepare journal entries for the two stock issues. b. Prepare journal entries for the cash dividend declaration and payment. a) Cash 45000*18 = $ 154, 8000 Share Holders Capital $ 154,8000 Cash 20,000*22 = $ 440,000 Share Holders Capital $ 440,000 Total Shares Sold = 45,000 + 20,000 = 65,000 Total Dividend = 45,000 + 20,000 = $ 65,000 b) Dividend Expense $ 65,000 Cash $ 65,000 5. Notes payable. Red Bank Enterprises was involved in the following transactions during the fiscal year ending October 31: 8/2: Borrowed $75,000 from the Bank of Kingsville by signing a 120-day note. 8/20: Issued a $40,000 note to Harris Motors for the purchase of a $40,000 de­livery truck. The note is due in 180 days and carries a 12% interest rate. 9/10: Purchased merchandise from Pans Enterprises in the amount of $15,000. Issued a 30-day, 12% note in settlement of the balance owed. 9/11: Issued a $60,000 note to Datatex Equipment in settlement of an overdue account payable of the same amount. The note is due in 30 days and car­ries a 14% interest rate. 10/10: The note to Pans Enterprises was paid in full. 10/31: The note to Datatex Equipment was paid in full. 11/30: Paid note to Bank of Kingville Instructions a. Prepare journal entries to record the transactions. b. Prepare adjusting entries on October 31 to record accrued interest. c. Prepare the Current Liability section of Red Bank’s balance sheet as of October 31. Assume that the Accounts Payable account totals $203,600 on this date. a) Cash $ 75,000 Capital (Kingsville) $ 75,000 Truck $ 40,000 Notes Payable $ 40,000 Merchandize $ 15,000 * 12% = 1800 = $ 13,200 A/C Payable (Pans Enterprises) $ 13,200 Datatex Equipment $ 60,000 * 14% = $ 8400 = $ 51,600 Notes Payable $ 51,600 Notes Payable (Pans Enterprises) $ 13,200 Cash $ 13,200 Notes Payable (Notes Payable) $ 51,600 Cash $ 51,600 Notes Payable (Kingsville) $ 75,000 Cash $ 75,000 b) Accrued Interest (Datex) $ 8,400 Cash $ 8,400 c) Current Liabilities = $ 118,000 References Andrew, S (2001), Strategic Management and Organizations, John Wiley and Sons Professional Publications Ackerman, R, (2002), Financial Management, Prentice Hall Publications, Bernard, R, Research Methods: (2006), Quantitative and Qualitative Research, McGraw Hill Publications Borodovsky, M & Gogarten, P, (2010), Financial Management Oxford Publications Blaxter, L & Hughes, C, (2006), Financial Management, McGraw Hill Publications, Umit, S and Carrier, A, (1998 Financial Management, Pearson Group Publications Ansari, S (2002), Financial Management, John Wiley Sons Professional Publications Ansoff, I (2007), Strategic Management, Oxford Publications Read More