Alyssa Plastic Company Has Been Operating For Three Years ✓ Solved

Alyssa Plastic Company has been operating for three years. At December 31 of last year, the accounting records reflected the following:

Assets:

• Cash: $22,000
• Marketable Securities: $3,000
• Accounts Receivable: $3,000
• Notes Receivable: $1,000
• Inventory: $20,000
• Equipment: $50,000
• Factory Building: $90,000
• Intangibles: $5,000

Liabilities & Equity:

• Accounts Payable: $15,000
• Accrued Liabilities: $4,000
• Notes Payable (Short Term): $7,000
• Long-Term Notes Payable: $47,000
• Common Stock: $10,000
• Additional Paid-in Capital: $80,000
• Retained Earnings: $31,000

Total Assets: $194,000

Total Liabilities & Equity: $194,000

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

1. Purchased marketable securities for $10,000 cash.
2. Lent $5,000 to a supplier, who signed a two-year note.
3. Purchased equipment that cost $18,000; paid $5,000 cash and signed a one-year note for the balance.
4. Hired a new president at the end of the year, with a contract for $85,000 per year plus options to purchase company stock.
5. Issued an additional 2,000 shares of $0.50 par value common stock for $11,000 cash.
6. Borrowed $9,000 cash as a short-term note payable from a local bank.
7. Purchased a patent for $3,000 cash.
8. Built an addition to the factory for $24,000; paid $8,000 in cash and signed a three-year note for the balance.
9. Returned defective equipment to the manufacturer, receiving a cash refund of $1,000.

Required:

1. Create a journal entry for each transaction.
2. Prepare a balance sheet as of December 31 of the current year.
3. Analyze the financial status of the company over this last year, developing financial ratios where possible to support your analysis.

Paper For Above Instructions

The Alyssa Plastic Company’s financial activities over the current year demonstrate a variety of operational changes that may significantly impact its financial standing. To analyze these changes and report transactions accurately, journal entries, a revised balance sheet, and financial ratio calculations are essential.

Journal Entries

The first step is to establish journal entries for each transaction that took place during the current year:

• 1. Purchase of marketable securities:

  Debit Marketable Securities $10,000

  Credit Cash $10,000

• 2. Loan to supplier:

  Debit Notes Receivable $5,000

  Credit Cash $5,000

• 3. Purchase of equipment:

  Debit Equipment $18,000

  Credit Cash $5,000

  Credit Notes Payable $13,000

• 4. Hiring new president:

  No journal entry required as this does not involve financial transactions.

• 5. Issuing common stock:

  Debit Cash $11,000

  Credit Common Stock $1,000

  Credit Additional Paid-in Capital $10,000

• 6. Borrowed cash:

  Debit Cash $9,000

  Credit Notes Payable $9,000

• 7. Purchase of patent:

  Debit Intangibles $3,000

  Credit Cash $3,000

• 8. Building factory addition:

  Debit Factory Building $24,000

  Credit Cash $8,000

  Credit Notes Payable $16,000

• 9. Return of defective equipment:

  Debit Cash $1,000

  Credit Equipment $1,000

Balance Sheet Preparation

After the journal entries are recorded, the balance sheet as of December 31 of the current year will reflect the new figures:

Alyssa Plastic Company

Balance Sheet

As of December 31, [Current Year]

Assets

• Cash: $22,000 - $10,000 + $1,000 + $11,000 + $9,000 - $5,000 = $28,000
• Marketable Securities: $3,000 + $10,000 = $13,000
• Accounts Receivable: $3,000
• Notes Receivable: $1,000 + $5,000 = $6,000
• Inventory: $20,000
• Equipment: $50,000 + $18,000 - $1,000 = $67,000
• Factory Building: $90,000 + $24,000 = $114,000
• Intangibles: $5,000 + $3,000 = $8,000

Total Assets: $ 299,000

Liabilities & Equity

• Accounts Payable: $15,000
• Accrued Liabilities: $4,000
• Notes Payable (Short Term): $7,000 + $9,000 = $16,000
• Long-Term Notes Payable: $47,000 + $13,000 + $16,000 = $76,000
• Common Stock: $10,000 + $1,000 = $11,000
• Additional Paid-in Capital: $80,000 + $10,000 = $90,000
• Retained Earnings: $31,000

Total Liabilities & Equity: $ 299,000

Financial Status Analysis

To assess the financial status of Alyssa Plastic Company, various financial ratios will be calculated using the data obtained from the balance sheet. Key ratios include:

• Current Ratio: Total Current Assets / Total Current Liabilities
• Debt to Equity Ratio: Total Liabilities / Total Equity
• Return on Assets (ROA): Net Income / Total Assets
• Return on Equity (ROE): Net Income / Total Equity

For a more detailed evaluation of the company's financial health, it's essential to calculate net income and detail other expenses as well; additional data from the income statement would be needed to complete this step.

Conclusion

Alyssa Plastic Company has engaged in several financially impactful transactions over the current year. The journal entries and balance sheet preparation provide a solid basis for understanding the financial activities and their outcomes. The calculated financial ratios will further illuminate the company's operational efficiency and financial health.

References

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