E2-8 Analyzing the Effects of Transactions in T-Accounts: L02, L03, L05
Mulkeen Service Company, Inc., was organized by Conor Mulkeen and five other investors. The following activities occurred during the year:
Received $60,000 cash from the investors; each was issued 1,000 shares of capital stock.
Purchased equipment for use in the business at a cost of Purchased equipment for use in the business at a cost of $12,000; one-fourth was paid in cash and the company signed a note for the balance (due in six months).
Signed an agreement with a cleaning service to pay it $120 per week for cleaning the corporate offices, beginning next week.
Lent $2,000 to one of the investors who signed a note due in six months.
Conor Mulkeen borrowed $10,000 for personal use from a local bank, signing a one-year note.
Required:
Create T-accounts for the following accounts: Cash, Notes Receivable, Equipment, Notes Payable, and Contributed Capital. Beginning balances are zero. For each of the above transactions, record its effects in the appropriate T-accounts. Include good referencing and totals for each T-account.
Using the balances in the T-accounts, fill in the following amounts for the accounting equation: Assets $___ = Liabilities $___ + Stockholders' Equity $___
Explain your response to events c and e.E2-9 Inferring Investing and Financing Transactions and Preparing a Balance Sheet: L02, L04, L05
During its first week of operations, January 1–7, 2006, Faith's Fine Furniture Corporation completed six transactions with the dollar effects indicated in the following schedule:
Dollar Effect of Each of the Six Transactions
Accounts 1 2 3 4 5 6 Ending Balance
Cash
$12,000
$50,000
$(4,000)
$4,000
$(7,000)
Equipment
7,000
Land
12,000
$3,000
Long-term Debt
50,000
8,000
4,000
3,000
Contributed Capital
12,000
Required:
Write a brief explanation of transactions 1 through 6. Explain any assumptions that you made.
Compute the ending balance in each account and prepare a classified balance sheet for Faith's Fine Furniture Company on January 7, 2006As of January 7, 2006, has most of the financing for Faith's investment in assets come from liabilities or stockholders' equity?
E2-10 Inferring Investing and Financing Transactions and Preparing a Balance Sheet: L02, L04, L05
During its first month of operations, March 2006, Faye's Fashions, Inc., completed four transactions with the dollar effects indicated in the following schedule:
Dollar Effect of Each of the Four Transactions
Accounts 1 2 3 4 Ending Balance
Cash
$50,000
$(4,000)
$5,000
$(4,000)
Computer Equipment
4,000
Delivery Truck
25,000
Long-term Notes Payable
21,000
Contributed Capital
50,000
Required:
Write a brief explanation of transactions 1 through
Explain any assumptions that you made.
Compute the ending balance in each account and prepare a classified balance sheet for Faye's Fashions, Inc., at the end of March 2006. As of March 31, 2006, has most of the financing for Faye's investment in assets come from liabilities or stockholders' equity?
E2-8)
Req. 1
Cash / Notes Receivable / EquipmentBeg. / 0 / Beg. / 0 / Beg. / 0
(a) / 60,000 / 3,000 / (b) / (d) / 2,000 / (b) / 12,000
2,000 / (d)
55,000 / 2,000 / 12,000
Notes Payable / Contributed Capital
0 / Beg. / 0 / Beg.
9,000 / (b) / 60,000 / (a)
9,000 / 60,000
Req. 2
Assets $69,000= Liabilities $9,000+ Stockholders’ Equity $60,000
Req. 3
The agreement in (c) involves no exchange or receipt of cash, goods, or services and thus is not a transaction. Because transaction (e) occurs between the owners and others, the separate entity assumption implies this transaction does not affect the business.
E2–9
Req. 1
Transaction / Brief Explanation1 / Issued stock for $12,000 cash.
2 / Borrowed $50,000 cash and signed a long-term note for this amount.
3 / Purchased land for $12,000; paid $4,000 cash and gave an $8,000 long-term note payable for the balance.
4 / Borrowed $4,000 cash and signed a long-term note for this amount.
5 / Purchased equipment for $7,000 cash.
6 / Purchase land for $3,000; paid for by signing a long-term note.
Req. 2
Faith’s Fine Furniture Company
Balance Sheet
At January 7, 2006
Assets / LiabilitiesCurrent Assets
Cash / $55,000 / Notes payable / $65,000
Total Current Assets / 55,000 /
Total Liabilities
/ 65,000Noncurrent Assets
Equipment / 7,000 /
Stockholders’ Equity
Land / 15,000 / Contributed capital / 12,000Total Stockholders’ Equity
/ 12,000Total Assets / $77,000 / Total Liabilities & Stockholders’ Equity /
$77,000
Req. 3
As of January 7, 2006, most of Faith’s financing has come from liabilities. The company has financed $65,000 of its investment in assets with liabilities and only $12,000 with stockholders’ equity.
E2–10
Req. 1
Transaction / Brief Explanation1 / Issued stock for $50,000 cash.
2 / Purchased a delivery truck for $25,000; paid $4,000 cash and gave a $21,000 long-term note payable for the balance.
3 / Borrowed $5,000 cash and signed a short-term note for this amount.
4 / Purchased computer equipment for $4,000 cash.
Req. 2
Faye’s Fashions, Inc.
Balance Sheet
At March 31, 2006
Assets / LiabilitiesCurrent Assets / Current Liabilities
Cash / $47,000 / Short-term bank loan / $ 5,000
Total Current Assets / 47,000 /
Total Current Liabilities
/ 5,000Long-term notes payable
/ 21,000Total Liabilities
/ 26,000Noncurrent Assets /
Stockholders’ Equity
Computer equipment / 4,000 / Contributed capital / 50,000Delivery truck / 25,000 /
Total Stockholders’ Equity
/ 50,000Total Assets / $76,000 / Total Liabilities & Stockholders’ Equity /
$76,000
Req. 3
As of March 31, 2006, most of Faye’s financing has come from stockholders’ equity. The company has financed $50,000 of its assets with stockholders’ equity and only $26,000 with liabilities.