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

Exercise 2

Recording Transactions (in a Journal and T-Accounts); Preparing and Interpreting the Balance Sheet
Ethan Allen Interiors Inc. is a leading manufacturer and retailer of home furnishings in 291 retail stores in the United States and abroad. The following is adapted from Ethan Allen's March 31, 2011. Dollars are in millions.

Assume that the following events occurred in the following quarter.
a. Paid $2 cash for additional "other asset".
b. Issued additional shares of common stock for $2 in cash.
c. Purchased property, plant, and equipment; paid $2 in cash are signed a note to pay the remaining $9 in two years
d. Sold, at cost, other assets for $1 cash.
e. Conducted negotiations to purchase a sawmill, which is expected to cost $36.
Required:
1. Analyze transactions ( a )-( e ) to determine their effects on the accounting equation. Use the format shown in the demonstration case on page 68.
2. Record the transaction effects determined in requirement 1 using journal entries.
3. Summarize the journal entry effects from requirement 2 using T-accounts. Use the March 2011 ending balances as the beginning balances for the April June 2011 quarter.
4. Explain your response to event ( e ).
5. Prepare a classified balance sheet at June 30, 2011.
6. As of June 30, 2011, has the financing for Ethan Allen's investment in assets primarily come from liabilities or stockholders' equity