Question

Ag Bio Tech (ABT) was organized on January 1 by four friends. Each organizer invested $13,750 in the company and, in turn, was issued 11,000 shares of common stock. To date, they are the only stockholders. During the first month (January), the company had the following five events:

1. Collected a total of $55,000 from the organizers and, in turn, issued common stock.
2. Purchased a building for $67,250, equipment for $18,000, and three acres of land for $26,250; paid $21,250 in cash and signed a note for the balance, which is due to be paid in 15 years.
3. One stockholder reported to the company that 900 shares of his ABT stock had been sold and transferred to another stockholder for $9,000 cash.
4. Purchased supplies for $3,650 cash.
5. Sold one acre of land for $8,750 cash to another company.

Required:

1. 2. During the first month, the records of the company were inadequate. You were asked to prepare a summary of the preceding transactions. To develop a quick assessment of their economic effects on ABT, complete the spreadsheet that follows.

2. 4. Based on the completed spreadsheet, compute the following amounts:

3. 5. As of January 31, has the financing for ABT’s investment in assets primarily come from liabilities or stockholders’ equity?

Answer 1

2		Assets					=	Liabilities	+	Stockholders' Equity
		Cash	Supplies	Land	Building	Equipment		Notes Payable		Common Stock	Retained Earnings
	Beg.	-	-	-	-	-		-		-	-
	a.	$55,000								$55,000
	b.	($21,250)		$26,250	$67,250	$18,000		$90,250
	c.	No effect
	d.	($3,650)	$3,650
	e.	$8,750		($8,750)
	End.	$38,850	$3,650	$17,500	$67,250	$18,000		$90,250		$55,000	$0
4
a.	Total assets at the end of the month				$145,250
b.	Total liabilitie at the end of the month				$90,250
c.	Total stockholders' equity at the end of the month				$55,000
d.	Cash balance at the end of the month				$38,850
e.	Total current assets at the end of the month				$42,500
5	Liabilties