E2-15 (Static) Analyzing the Effects of Transactions Using T-Accounts and Interpreting the Current Ratio as a Manager of the Company LO2-4, 2-5

Higgins Company began operations last year. You are a member of the management team investigating expansion ideas that will require borrowing funds from banks. On January 1, the start of the current year, Higgins T-account balances were as follows:

Assets:
Cash
5,000

Short-Term Investments
2,500

Property and Equipment
3,000

Liabilities:
Notes Payable (current)
	2,200

Notes Payable (noncurrect)
	800

Common Stock
	500

Additional Paid-in Capital
	4,000

Retained Earnings
	3,000

Required:

1. Using the data from these T-accounts, determine the amounts for the following on January 1 of the current year:

2. Prepare journal entries for transactions (a) through (e) for the current year.

1. Borrowed $4,000 from a local bank, signing a note due in three years.
2. Sold $1,500 of the investments for $1,500 cash.
3. Sold one-half of the property and equipment for $1,500 in cash.
4. Declared $800 in cash dividends to stockholders.
5. Paid dividends to stockholders.

3. Enter the effects of the transactions in Requirement 2 in the T-accounts.

4. Prepare a trial balance at December 31.

5. Prepare a classified balance sheet at December 31 of the current year in good form.

6. Calculate the current ratio at December 31 of the current year.