Question

Required information 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.

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

Prepare a classified balance sheet at May 31. Include Retained Earnings with a balance of zero.

Answer 1

Cash
Common stock	43,000	Equipment	3,000
Note payable	16,000	Equipment	12,500
Ending balance	43,500

Balance Sheet
Assets	$	Liabilities + Equity	$
Current Assets:		Current Liabilities:
Cash	43,500	Accounts payable	12,500
		Note payable	4,000
Plant assets:		Total current liabilities	16,500
Equipment	32,000	Note payable	16,000
		Stockholders Equity:
		Common stock	43,000
		Retained earnings	0
		Total stockholders equity	43,000
Total Assets	$75,500	Total Liabilities and Stockholders Equity	$75,500

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