Ethan Allen Interiors Inc. is a leading manufacturer and retailer of home furnishings in the United States and abroad. The following is adapted from Ethan Allen€™s September 30, 2013, trial balance. (The amounts shown represent millions of dollars.)

Assume that the following events occurred in the following quarter.
a. Paid $ 30 cash for additional inventory.
b. Issued additional shares of common stock for $ 20 in cash.
c. Purchased equipment for $ 170; paid $ 80 in cash and signed a note to pay the remaining $ 90 in two years.
d. Signed a short- term note to borrow $ 10 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 69.
2. Record the transaction effects determined in requirement 1 using journal entries.
3. Using the September 30, 2013, ending balances as the beginning balances for the October- December 2013 quarter, 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 (e).
5. Prepare a classified balance sheet at December 31, 2013.
6. As of December 31, 2013, has the financing for Ethan Allen€™s investment in assets primarily come from liabilities or stockholders€™ equity?
7. Calculate Ethan Allen€™s current ratio at September 30, 2013, prior to the transactions listed above. (Using the September 30 balances will prevent any errors in your answers to requirements 1-5 from affecting your answer to this requirement.) Based on this calculation and the analysis of LinkedIn€™s current ratio in the chapter, indicate which company was in a better position to pay liabilities as they come due in the next year.

Transcribed Image Text:

Accounts Payable Accounts Receivable $121 Notes Payable (long-term) $150 13 Notes Payable (short-term) 106 Prepaid Rent 21 Retained Eanings Common Stock Equipment Inventory Salaries and Wages Payable Short-term Investments Software 23 321 23 13 50 290 142