Malamud Incorporated is a small manufacturing company that makes model trains to sell to toy stores. It
Question:
Malamud Incorporated is a small manufacturing company that makes model trains to sell to toy stores.
It has a small service department that repairs customers' trains for a fee. The company has been in business for five years. At the end of the most recent year. 2003, the accounting records reflected total assets of $500,000 and total liabilities of S200.000. During the current year, 2004. the following summarized events occurred:
a. Issued an additional 10.000 shares of capital stock for SI 00.000 cash.
b. Borrowed $120,000 cash from the bank and signed a 10-year note.
c. Built an addition on the factory for $200,000 and paid cash to the contractor.
d. Purchased equipment for the new addition for $30,000. paying $3,000 in cash and signing a note due in six months for the balance.
e. Purchased $85,000 in long-term investments.
/. Returned a $3,000 piece of equipment purchased in
(d) because it proved to be defective:
received a reduction of its short-term note payable.
g. Purchased a delivery truck (equipment) for $10,000; paid $5,000 cash and signed a short-term note payable for the remainder.
/?. Lent $2,000 cash to the company president. Jennifer Malamud. who signed a note with terms showing the principal plus interest due in one year.
i. A stockholder sold $5,000 of his capital stock in Malamud Incorporated to his neighbor.
Required: 1. During 2004. the records of the company were inadequate. You were asked to prepare the summary of the preceding transactions. To develop a quick assessment of their economic effects on Malamud Incorporated, you have decided to complete the tabulation that follows and to use plus
( + ) for increases and minus ( — ) for decreases for each account. The first transaction is used as an example.
2. Did you include Event (/) in the tabulation'1 Why? 3. Based on beginning balances plus the completed tabulation, pan ide the follow ing amounts (show computations):
a. Total assets at the end of the month.
b. Total liabilities at the end of the month.
c. Total shareholders' equity at the end of the month. 4. Compute the financial leverage ratio for 2004. What does this suggest about the company ?
Step by Step Answer:
