MBA Math Sample Exercise

Accounting: Transaction Recording

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Exercise

Ruston Company Balance Sheet As of January 4, 2009 (amounts in thousands)

Cash	9,300	Accounts Payable	2,500
Accounts Receivable	5,000	Debt	2,300
Inventory	5,500	Other Liabilities	6,500
Property Plant & Equipment	15,900	Total Liabilities	11,300
Other Assets	1,400	Paid-In Capital	5,700
		Retained Earnings	20,100
		Total Equity	25,800
Total Assets	37,100	Total Liabilities & Equity	37,100

Transfer the journal entries to T-accounts for the transactions below, compute closing amounts for the T-accounts, and construct a final balance sheet to answer the question.

Journal amounts in thousands

Date Account and Explanation Debit Credit

Jan 4 Accounts Payable 8

   Cash 8

Paid money owed to supplier

Jan 5 Property, Plant & Equipment 49

   Cash 49

Paid cash for machine

Jan 6 Cash 70

   Paid-In Capital 70

Issued stock

Jan 7 Cash 20

   Inventory 16

   Retained Earnings 4

Sold and delivered product to customer

Jan 8 Cash 51

   Debt 51

Borrowed money from bank

Jan 9 Inventory 14

   Accounts Payable 14

Bought manufacturing supplies on credit

Jan 10 Cash 10

   Accounts Receivable 10

Received customer payment

What is the final amount in Total Assets?

Solution

Solution Commentary

(3:53)

Manual Solution

The first step is to transfer the journal entries to T-accounts:

Cash
Balance 9,300	8
70	49
20
51
10

PP&E, Net
Balance 15,900
49

Accounts Payable
8	Balance 2,500
	14

Other Liabilities
	Balance 6,500

Accounts Receivable
Balance 5,000	10

Other Assets
Balance 1,400

Debt
	Balance 2,300
	51

Paid-In Capital
	Balance 5,700
	70

Inventory
Balance 5,500	16
14

Retained Earnings
	Balance 20,100
	4

Next, we compute the net balances for the T-accounts:

Cash
Balance 9,300	8
70	49
20
51
10
Balance 9,394

PP&E, Net
Balance 15,900
49



Balance 15,949

Accounts Payable
8	Balance 2,500
	14



	Balance 2,506

Other Liabilities
	Balance 6,500




	Balance 6,500

Accounts Receivable
Balance 5,000	10




Balance 4,990

Other Assets
Balance 1,400




Balance 1,400

Debt
	Balance 2,300
	51



	Balance 2,351

Paid-In Capital
	Balance 5,700
	70



	Balance 5,770

Inventory
Balance 5,500	16
14



Balance 5,498

Retained Earnings
	Balance 20,100
	4



	Balance 20,104

Finally, we create a balance sheet using the closing T-account amounts:

Ruston Company Balance Sheet As of January 10, 2009 (amounts in thousands)

Cash	9,394	Accounts Payable	2,506
Accounts Receivable	4,990	Debt	2,351
Inventory	5,498	Other Liabilities	6,500
Property Plant & Equipment	15,949	Total Liabilities	11,357
Other Assets	1,400	Paid-In Capital	5,770
		Retained Earnings	20,104
		Total Equity	25,874
Total Assets	37,231	Total Liabilities & Equity	37,231

The final amount in Total Assets is $37,231,000

Peter Regan teaches decision science courses at Dartmouth�s Tuck School and Duke�s Fuqua School. He also teaches pre-term quantitative skills courses at Tuck and Cornell�s Johnson School. He created the MBA Math self-paced, online pre-MBA quantitative skills course covering finance, accounting, economics, statistics, and spreadsheets.