Recording Transactions (in a Journal and T-Accounts);

Preparing and Interpreting the Balance Sheet

Performance Plastics Company (PPC) has been operating for three years. The beginning account balances are:

During the year, the company had the following summarized activities:

a. Purchased equipment that cost $21,000; paid $5,000 cash and signed a two-year note for the balance.
b. Issued an additional 2,000 shares of common stock for $20,000 cash.
c. Borrowed $50,000 cash from a local bank, payable June 30, in two years.
d. Purchased supplies for $4,000 cash.
e. Built an addition to the factory buildings for $41,000; paid $12,000 in cash and signed a three-year note for the balance.
f. Hired a new president to start January 1 of next year. The contract was for $95,000 for each full year worked.

Required:

1. Analyze transactions (a)-(f) to determine their effects on the accounting equation.

TIP: You won't need new accounts to record the transactions described above, so have a quick look at the ones listed in the beginning of this question before you begin.

TIP: In transaction (e), three different accounts are affected.

TIP: In transaction (f), consider whether PPC owes anything to its new president for the current year ended December 31.

2. Record the transaction effects determined in requirement 1 using journal entries.

3. Summarize the journal entry effects from requirement 2. Use T-accounts if this requirement is being completed manually; if you are using the GL tool in Connect, the journal entries will have been posted automatically to general ledger accounts that are similar in appearance to Exhibit 2.9.

4. Explain your response to event (f).

5. Prepare a classified balance sheet at December 31.

6. As of December 31, has the financing for PPC's investment in assets primarily come from liabilities or stockholders' equity?

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