Question

Mallard Incorporated (MI) is a small manufacturing company that makes model trains to sell to toy stores. It has a small service department that repairs customers' trains for a fee. The company has been in business for five years. At the end of the previous year, the accounting records reflected total assets of $550,000 and total liabilities of $225,000. During the current year, the following summarized events occurred: a. Issued additional shares of common stock for $90,000 cash. b. Borrowed $137,000 cash from the bank and signed a 10-year note. -C. Built an addition on the buildings for $202,000 and paid cash to the contractor. d. Purchased equipment for the new addition for $45,500, paying $4,550 in cash and signing a note for the balance due in two years. e. Returned a $4,550 piece of equipment, from (d), because it proved to be defective; received a reduction of the notes payable. f. Purchased a delivery truck (equipment) for $10,500; paid $7,350 cash and signed a two-year note for the remainder. g. A stockholder sold $8,300 of his stock in Mallard Incorporated to his neighbor. Required: 1. Complete the spreadsheet that follows. The first transaction is used as an example. 3. Based on beginning balances plus the completed spreadsheet, provide the Total assets, liabilities and stockholders' equity at the end of year. 4. As of the current year-end, has the financing for Ml's investment in assets primarily come from liabilities or stockholders' equity?

Answer 1

Requirement 1
	Assets			=	Liabilities	+	Stockholders' Equity
	Cash	Equipment	Buildings	=	Notes payable	+	Common stock	Retained Earnings
a	90,000			=		+	90,000
b	137,000			=	137,000	+
c	-202000		202,000	=		+
d	-4550	45,500		=	40,950	+
e		-4550		=	-4550	+
f	-7350	10,500		=	3,150	+
g	No entry	No entry	No entry	=	No entry	+	No entry	No entry
End	13,100	51,450	202,000		176,550	#	90,000	-
Requirement 3
a	Total assets at end of the year			=	816,550	(550,000+13,100+51,450+202,000)
b	Total liabilities at end of the year			=	401,550	(225,000+176,550)
c	Total stockholders' equity at end of yr			=	415,000	(550,000-225,000+90,000)			Note: Total assets - total liability = stockholder's equity
Requirement 4
	Financing for MI's investment during the current year came primarily from LIABILITIES

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