Lee Delivery Company was organized at the beginning of Year 1. The following transactions occurred during the year:

1. Received $48,000 cash from the organizers in exchange for shares in the new company.
2. Purchased land for $17,600 and signed a one-year note (at a 6 percent annual interest rate).
3. Bought two used delivery trucks for operating purposes at the start of the year at a cost of $13,200 each; paid $6,600 cash and signed a promissory note for the balance, payable over the next three years (at an annual interest rate of 7 percent).
4. Sold one-fourth of the land for $4,400 to Birkins Moving, which promised to pay in six months.
5. Paid $3,600 cash to a truck repair shop for a new motor for one of the trucks. (Hint: Increase the account you used to record the purchase of the trucks since the usefulness of the truck has been improved.)
6. Traded the other truck and $7,600 cash for a new one. The old trucks fair value is $13,200.
7. Shareholder Jonah Lee paid $29,100 cash for a vacant lot (land) for his personal use.
8. Collected the amount of the note due from Birkins Moving in (d).
9. Paid one-third of the principal of the note due for the delivery trucks in (c).

Required:

1. Post the above transactions into the appropriate T-accounts, beginning balances is $0 for all accounts.

2-a. Prepare a classified statement of financial position for Lee Delivery Company at the end of Year 1.

2-b. Compute the current ratio at that date. (Round the final answer to 2 decimal places.)

3. At the end of the next two years, Lee Delivery Company reported the following amounts on its statements of financial position:

	December 31, Year 2		December 31, Year 3
Current assets	$	60,000		$	55,000
Non-current assets		46,000			81,000
Total assets		106,000			136,000
Short-term notes payable		31,000			48,000
Long-term notes payable		25,000			28,000
Total liabilities		56,000			76,000
Shareholders' equity		50,000			60,000

3-a. Compute the companys current ratio for Years 1, 2, and 3. (Round the final answers to 2 decimal places.)

4. At the beginning of Year 4, Lee Delivery Company applied to your bank for a $50,000 short-term loan to expand the business. The vice-president of the bank asked you to review the information and make a recommendation on lending the funds based solely on the results of the current ratio. What recommendation would you make to the banks vice-president about lending the money to Lee Delivery Company?

multiple choice

Should not extend loan

Should extend loan