Question

Name(s) Class Time In-Class Case #2B Chapter 2 Hawking, Inc. had the following activities occur in the current year: 1. 2. 3. 4. Issued 2,000 shares of common stock for $350 cash per share. Purchased buildings for $175,000 and equipment for $80,000; paid $200,000 in cash and signed a long-term note payable for the rest. Purchased short-term investments for $10,000 cash. Several Hawking, Inc. investors sold 1,000 shares of their own stock to other investors on the stock exchange for $360 per share. Sold short-term investments for $5,000 in cash. 5. Required a) Show the effects of the above transactions on the accounting equation. b) Prepare journal entries for each transaction. Post journal entries to the general ledger/T-accounts, summarize each account and find a balance. c)

Answer 1

Solution:

Requirement A:

	Assets		=	Liabilities		+	Stockholders` Equity
	Account	Amount		Account	Amount		Account	Amount
1	Cash	$   700,000					Common Stock	$ 700,000
2	Buildings	$   175,000		Notes Payable	$       55,000
	Equipment	$      80,000
	Cash	$ (200,000)
3	Investments	$      10,000
	Cash	$   (10,000)
4		$               -			$                 -			$             -
5	Investments	$   (10,000)					Retained Earnings(loss on investment)	$    (5,000)
	Cash	$        5,000

Requirement B:

No.	Account Titles and Explanation	Debit	Credit
1	Cash	$     700,000
	Common stock ( 2000*350)		$    700,000
	(Being Common Stock Issued)
2	Buildings	$     175,000
	Equipment	$       80,000
	Cash		$    200,000
	Notes Payable		$      55,000
	(Being assets purchased)
3	Investment( Short Term)	$       10,000
	Cash		$      10,000
	( Being investments purchased)
4	No entry Required	$                -
5	Cash	$         5,000
	Loss on sale of investment	$         5,000
	Investment( Short Term)		$      10,000
	( Being investments sold)

Requirement C:

Cash
1	$ 700,000	2	$     200,000
5	$      5,000	3	$        10,000
End Balance	$ 495,000
Common Stock
		Beg Balance	$                 -
		1	$     700,000
		End Balance	$     700,000
Building
2	$ 175,000
End Balance	$ 175,000
Equipment
2	$    80,000
End Balance	$    80,000
Notes Payable
		2	$        55,000
		End Balance	$        55,000
Investment( Short Term)
3	$    10,000	5	$        10,000
End Balance	$             -
Loss on sale of investment
5	$      5,000
End Balance	$      5,000

Notes:

1) Shares sold by investor in secondary market does not effect the company. So, no effect on accounting equation and no journal entry.