Question

5
higgins company began operations last year. you are a member of the management team investigating expansion
deals that will require borrowing funds from banks. on january 1, the start of year 2, higgins t - account balances were
as follows:
assets:
liabilities:
stockholders equity:
required:

1. using the data from the t - accounts given, complete the accounting equation on january 1 of year 2.
2. prepare journal entries for transactions (a) through (d) for year 2.

a. borrowed $4,000 from a local bank, signing a note due in three years.
b. sold $1,500 of the investments for $1,500 cash.
c. sold one - half of the property and equipment for $1,500 in cash.
d. declared $800 in cash dividends to stockholders.
e. paid dividends to stockholders.

1. enter the effects of the transactions in requirement 2 in the t - accounts. the beginning balance of dividends payable

account is $0.

1. prepare a trial balance at december 31, year 2.
2. prepare a classified balance sheet at december 31, year 2 in good form.
3. calculate the current ratio at december 31, year 2.

answer is not complete.
complete this question by entering your answers in the tabs below.
enter the effects of the transactions in requirement 2 in the t - accounts. the beginning balance of dividends payable
account is $0.

Explanation:

Answer:

1. Assets $\$10,500$ = Liabilities $\$3,000$ + Stockholders' Equity $\$7,500$
2. a. Debit Cash $\$4,000$; Credit Notes Payable (noncurrent) $\$4,000$

b. Debit Cash $\$1,500$; Credit Short-Term Investments $\$1,500$
c. Debit Cash $\$1,500$; Credit Property and Equipment $\$ 1,500$
d. Debit Retained Earnings $\$800$; Credit Dividends Payable $\$800$
e. Debit Dividends Payable $\$800$; Credit Cash $\$800$

1. Current Ratio = $2.82$