TimmyL Baseball Card Co buys and sells baseball cards of a f

TimmyL Baseball Card Co. buys and sells baseball cards of a famous (ex) San Francisco Giants baseball player. The company was formed in 2015. The post-closing trial balance of that company for the end of operations in that first year is:

TimmyL Baseball Card Co.

Trial Balance

December 31, 2015

Account                                   Debit                       Credit

Cash                                                $250,000

Accounts Receivable                                   80,000

Allowance for Bad Debts                                                $ 8,000

Inventory                                 600,000

Supplies                                     10,000

Prepaid Advertising                                             9,000

Land                                                200,000

Building                                  500,000

Accumulated Depreciation-B.                                            8,000

Patent                                                 95,000

Accounts Payable                                                        100,000

Dividends Payable                                                  30,000

Income Tax Payable                                                        75,000

Interest Payable                                                           3,000

Salaries Payable                                                      20,000

Notes Payable                                                         120,000

Common Stock ($10 par value)                                      100,000

Paid in Capital in Excess of Par                                      900,000

Retained Earnings                                                   380,000

Total                                                $1,744,000              $1,744,000

Accounting Cycle Step 1: The following entries occurred during the second year of operations, 2016. (A) Journalize each below entry, (B) explain how that entry affects total assets, total liabilities and total stockholders’ equity (does it increase, decrease, or is there no effect on each balance sheet subsection?), (C) explain how that entry affects the current ratio (current assets/current liabilities – does that ratio increase, decrease, or is indeterminable?), (D) explain how that entry affects the leverage ratio (total liabilities/total equity – does that ratio increase, decrease or is indeterminable?), and (E) explain how that entry affects the profitability ratio (net income/net sales – does that ratio increase, decrease or is indeterminable?).

1/5 Paid the salaries due from the previous year.

1/30 The beginning inventory of 2016 consists of 10,000 baseball cards at a cost of $60 each. TimmyL sold 5,000 of these cards, on account, at a price of $200 each. TimmyL uses a perpetual inventory system and uses FIFO as a cost flow assumption.

2/1 Paid our suppliers the entire amount owed on the trade accounts payable from the previous year.

2/15 Collected $900,000 in accounts receivable from customers.

3/1 Paid shareholders the dividend declared in 2015.

3/31 Paid the Notes Payable plus all accrued interest. The Notes Payable account consists of a $120,000, 10 percent, 6 month obligation from the bank on 10/1/15.

4/1 Incurred and paid the utilities bill of $10,000.

4/15 Paid the government the taxes due from 2015.

5/1 Purchased on account 3,000 new baseball cards at a cost of $70 each.

5/15 Paid $200,000 of the amount owed on trade accounts payable.

6/1 Purchased $15,000 in supplies for cash and debited a permanent (real) account [instead of a temporary (nominal) account].

6/15 One customer owing $10,000 was declared bankrupt. TimmyL wrote off this account as uncollectable.

7/1 Purchased online advertising for one year at a cost of $2,000 per month for cash and debited a temporary (nominal) account [instead of a real (permanent) account].

7/5 Sold 5,000 new shares of common stock at a market price of $150 per share.

8/1 Lent the CEO of TimmyL $200,000 and accepted an eight month, eight percent note receivable.

8/15 Paid $50,000 salaries.

8/31 Sold 5,000 baseball cards on account at a price of $250 per card.

9/1 Purchased a computer system for $70,000 by making a $10,000 down payment and issuing a six month six per cent note for the balance.

9/15 Sold a quarter of the land owned by TimmyL for a cash price of $300,000.

10/1 Received $1,200,000 due from customers.

11/1 Received $100,000 in advance from a customer for the future sale of an extra special baseball card that TimmyL will acquire in 2017. TimmyL credited a permanent (real) account [instead of a temporary (nominal) account].

12/15 Declared an annual cash dividend of $5 per common share to shareholders payable in ninety days.

Solution

TimmyL Baseball Card Company Journal entries for the year ending December 31, 2016 Date Account title Debit Credit Effect on Assets, Liabilities and Stock holders\' equity Effect on Current ratio Effect on leverage ratio 1/5/2016 Salaries payable 20000 Decrease in current assets No effect Decrease Cash 20000 Decrease in current liabilities 1/30/2016 Accounts receivable 1000000 Increase in current assets Increase Decrease Sales Revenue 1000000 Increase in stockholders\' equity Cost of goods sold 300000 Inventory 300000 2/1/2016 Accounts payable 100000 Decrease in current assets No effect Decrease Cash 100000 Decrease in current liabilities 2/15/2016 Cash 900000 No effect No effect No effect Accounts receivable 900000 3/1/2016 Dividend payable 30000 Decrease in current assets No effect No effect Cash 30000 Decrease in current liabilities 4/1/2016 Utilities expense 10000 Decrease in current assets Decrease Decrease Cash 10000 Decrease in stockholders\' equity 4/15/2016 Income tax payable 75000 Decrease in current assets No effect Decrease Cash 75000 Decrease in current liabilities 5/1/2016 Inventory 210000 Increase in current assets No effect Increase Accounts payable 210000 Increase in current liabilities 5/15/2016 Accounts payable 200000 Decrease in current assets No effect Decrease Cash 200000 Decrease in current liabilities 6/1/2016 Supplies 15000 No effect No effect No effect Cash 15000 6/15/2016 Allowance for bad debts 10000 No effect No effect No effect Accounts receivable 10000 7/1/2016 Prepaid advertising 24000 No effect No effect No effect Cash 24000 7/5/2016 Cash 750000 Increase in current assets Increase Decrease Common stock 50000 Increase in stockholders\' equity Additional paid-in-capital 700000 8/1/2016 Note receivable 200000 No effect No effect No effect Cash 200000 8/15/2016 Salaries expense 50000 Decrease in current asset Decrease Increase Cash 50000 Decrease in stockholders\' equity 8/31/2016 Accounts receivable 1250000 Increase in current assets Increase Decrease Sales Revenue 1250000 Increase in stockholders\' equity Cost of goods sold 300000 Inventory 300000 9/1/2016 Equipment 70000 Increase in fixed asset Decrease Increase Cash 10000 Decrease in current asset Note payable 60000 Increase in current liability 9/15/2016 Cash 300000 Increase in current assets Increase Decrease Land 50000 Decrease in fixed assets Gain on sale of land 250000 Increase in stockholders\' equity 10/1/2016 Cash 1200000 No effect No effect No effect Accounts receivable 1200000 11/1/2016 Cash 100000 Increase in current assets No effect Increase Unearned revenue 100000 Increase in current liability 12/15/2016 Retained earnings 75000 Increase in current liability Decrease No effect Dividend payable 75000 Decrease in stockholders\' equity