Recording transactions (in a journal and t-accounts)

Recording Transactions (in a Journal and T-Accounts); Preparing and Interpreting the Balance Sheet Ethan Allen Interiors, Inc., is a leading manufacturer and retailer of home furnishings in 291 retail stores in the United States and abroad. The following is adapted from Ethan Allen’s balance sheet as of September 30, 2008. Dollars are in millions.

Cash

$ 80

Accounts Payable

$ 26

Accounts Receivable

12

Wages and Other Expenses Payable

111

Inventories

188

Long-term Debt

203

Other Current Assets

26

Other Long-term Liabilities

44

Property, Plant, and Equipment

355

Contributed Capital

356

Other Assets

99

Retained Earnings

20

Assume that the following events occurred in the quarter ended December 31. Dollars are in millions.

a. Paid $2 cash for an additional “other asset.”

b. Issued additional shares of stock for $2 in cash.

c. Purchased property, plant, and equipment; paid $2 in cash and signed a note to pay the remaining $9 in two years.

d. Sold, at cost, other assets for $1 cash.

e. Conducted negotiations to purchase a sawmill, which is expected to cost $36.

Required:

1. Analyze transactions ( a )–( e ) to determine their effects on the accounting equation. Use the format shown in the demonstration case on page 68.

2. Record the transaction effects determined in requirement 1 using journal entries.

3. Summarize the journal entry effects from requirement 2 using T-accounts. Use the September

2008 ending balances as the beginning balances for the October–December 2008 quarter.

4. Explain your response to event ( e ).

5. Prepare a classified balance sheet at December 31, 2008.

6. As of December 31, 2008, has the financing for Ethan Allen’s investment in assets primarily come from liabilities or stockholders’ equity?

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