Question

Assume Down, Inc., was organized on May 1 to compete with Despair, Inc.—a company that sells de-motivational posters and office products. Down, Inc., encountered the following events during its first month of operations.

1. Received $43,000 cash from the investors who organized Down, Inc.
2. Borrowed $16,000 cash and signed a note due in two years.
3. Ordered equipment costing $25,000.
4. Purchased $7,000 in equipment, paying $3,000 in cash and signing a six-month note for the balance.
5. Received the equipment ordered in (c), paid for half of it, and put the rest on account.

Required:

1. Summarize the financial effects of items (a)–(e) in a table. (Enter any decreases to account balances with a minus sign.)

Answer 1

Solution:

	Assets		=	Liabilities			+	Stockholder's equity
	Cash	Equipment	=	Accounts payable	Short term Notes payable	Long term Notes payable	+	Common stock
a	$43,000.00							$43,000.00
b	$16,000.00					$16,000.00
c	No entry
d	($3,000.00)	$7,000.00			$6,000.00
e	$12,500.00	$25,000.00		$12,500.00
Ending balance	$68,500.00	$32,000.00		$12,500.00	$6,000.00	$16,000.00		$43,000.00