Required information [The following information applies to the questions display

Question

Required information [The following information applies to the questions displayed below. Edward Allen Interiors Inc. is a leading manufacturer and retailer of home furnishings in the United States and abroad The following is adapted from Edward Allen's September 30, 2016, trial balance. (The amounts shown represent millions of dollars.) 128 29 138 Accounts Pavable Accounts Receivable Cash Common Stock Equipment Inventory Notes Payable (long-term) Notes Payable (short-term) Prepaid Rent Retained Earnings Salaries and Wages Payable Software 370 174 230 385 70 Assume that the following events occurred in the following quarter a. Paid $30 cash for additional inventory b. Issued additional shares of common stock for $10 in cash. c. Purchased equipment for $200; paid $95 in cash and signed a note to pay the remaining $105 in two years d. Signed a short-term note to borrow $14 cash. e. Conducted negotiations to purchase a sawmill, which is expected to cost $36

Explanation / Answer

1) Current Ratio = Current Assets/Current Liabilities   

Current Assets = Cash+Accounts Receivable+Inventory+Prepaid Rent

= $138+$29+$174+$30 = $371 millions

Current Liabilities = Accounts Payable+Short term Notes Payable+Salaries and Wages Payable

= $128+$1+$39 = $168 millions

Current Ratio = $371 million/$168 million = 2.21

2) Transaction Analysis (Amounts in Millions $)

3) Journal Entries (Amounts in Millions $)

4) (All Amounts are in Millions $)

Assets = Liabilities + Stockholders' Equity a) Inventory 30 Cash -30 b) Cash 10 Common Stock 10 c) Equipment 200 Notes Payable (Long-Term) 105 Cash -95 d) Cash 14 Notes Payable (Short-Term) 14 e) No Effect

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