Question

- Homework Required information E2-15 Analyzing and Recording Transactions, and Preparing and Evaluating a Balance Sheet (LO 2-2, LO 2-3, LO 2-4, LO 2-5) Business Sim Corp. (BSC) issued 1,500 common shares to Kelly in exchange for $21,000. BSC borrowed $42,000 from the bank, promising to repay it in two years. BSC paid $47,000 for computer equipment with check number 101 and signed a note for $6,000 due in six months. BSC received $1,050 of supplies purchased on account. BSC's loan contains a clause ("covenant) that requires BSC to maintain a ratio of current assets to current liabilities of at least 22. E2-15 Part 3 Assuming BSC entered into no other activities during its first year ended September 30, prepare the company's classified balance sheet. Include a balance of zero in Retained Earnings BUSINESS SIM CORP. Balance Sheet At September 30 Assets Liabilities Cash Supplies Accounts Payable Notes Payable (short-term) Total Current Assets Equipment Total Current Liabilities Notes Payabile long-term) Total Labs Stockholders' Equity Common Stock Rotaned Earnings Total Stockholders' Equity T otal Liabilities and Stockholders' Equity Total Assets $ o

Answer 1

Balance Sheet:

BUSINESS SIM CORP.
Balance Sheet
At September 30
Assets		Liabilities and stockholders' equity
Current Assets:		Current liabilities:
Cash	$22,000	Accounts payable	$1,050
Supplies	$1,050	Notes payable (due in 6 months)	$6,000
Total current assets	$23,050	Total current liabilities	$7,050
		Long-term debt:
Property,plant,and equipment:		Notes payable (due in 2 years)	$42,000
Equipment	$47,000	Total liabilities	$49,050
		Stockholders' equity:
		Common stock	$21,000
		Retained earnings	$0
		Total stockholders' equity	$21,000
Total Assets	$70,050	Total liabilities and stockholders' equity	$70,050

Calculations:

T-Account:

Cash
$21,000	$47,000
$42,000
$6,000
$22,000

Balances:

Cash	$22,000
Supplies	$1,050
Equipment	$47,000
Accounts payable	$1,050
Notes payable (due in 6 months)	$6,000
Notes payable (due in 2 years)	$42,000
Common stock	$21,000

Current ratio:

Current ratio = Current assets ÷ Current liabilities = 23,050/7,050 = 3.27

Complying or not:

BSC is complying with loan covenant because it is more than 2.2