Instructions
As you recall, you have started a business, Main Squeeze, that willsell lemonade. You have decided to incorporate the company forlegal liability and taxation reasons.
The following are some of Main Squeeze’s transactionsthat occurred in April;
a. You put $3,000 cash into the company and signedover your car (with a value of $5,000). In exchange the companyissued 8,000 shares to you.
b. Purchased a lemonade stand/trailer paying $600 cash on signingand financing the remainder with a loan over 5 years. The standspurchase price is $6,000.
c. Entered into a 5-year seasonal lease for prime boardwalk spacewith the city of saint john. Payments are $500 monthly from May toSeptember.
d. Purchased a new juicer machine for $1,500 cash, and a waterfiltration system for $800 signing a short term note payable due in4 months,
e. Ordered $500 worth of inventory of (lemons, sugar and cups) tobe received May 3.
f. Hired a part-time employee for $1,500 per month who will startin May.
1.For each of the events, prepare journal entries if atransaction of the business exists, checking that credits equaldebits. If a transaction does not exist, explain why there is notransaction for the business.
2.Create T-accounts, and post each of the transactions to determinebalances at April 30th. Because this is a new business, beginningbalances are $0
3.Prepare a trial balance, prepare a classified statement offinancial position (with current assets and current liabilitiessections) at April 30th (before beginning operations in May)
4.For each of the events, indicate if it is an investing activity(I) or financing activity (F) and the direction (+ for increases and – for decreases)and the amount of the effect on the cash flows using the followingstructure. Write NE if there is no effect on Cash flows.
5.Calculate the current ratio at April 30th. What does this ratioindicate about the ability of Main Squeeze to pay its currentliabilities?
