Fundamentals of Financial Accounting 4th Edition by Fred Phillips,Robert Libby,Patricia Libby

Exercise 54

Accounting for the Establishment of a Business
Nicole has decided that she is going to start her business, Nicole's Getaway Spa (NGS). A lot has to be done when starting a new business. Here are some transactions that have occurred prior to April 30, 2013.
a. Received $80,000 cash when issuing 8,000 new common shares.
b. Purchased land by paying $2,000 cash and signing a note payable for $7,000 due in 2016.
c. Hired a new aesthetician for a salary of $1,000 a month, starting next month.
d. NGS purchased a company car for $18,000 cash (list price of $21,000) to assist in running errands for the business.
e. Bought and received $1,000 in supplies for the spa on credit.
f. Paid $350 of the amount owed in ( e ).
g. Nicole sold 100 of her own personal shares to Raea Gooding for $300.
Required:
1. For each of the events, prepare journal entries if a transaction exists, checking that debits equal credits. If a transaction does not exist, explain why there is no transaction.
2. Assuming that the beginning balances in each of the accounts are zero, complete T-accounts to summarize the transactions ( a )-( g ).
3. Prepare a classified balance sheet at April 30, 2013 using the information given in the transactions.
4. Calculate the current ratio at April 30, 2013 What does this ratio indicate about the ability of NGS to pay its current liabilities