Question

Maben Company was started on January 1, Year 1, and experienced the following events during its first year of operation:

1. Acquired $31,000 cash from the issue of common stock.
2. Borrowed $39,000 cash from National Bank.
3. Earned cash revenues of $49,000 for performing services.
4. Paid cash expenses of $45,500.
5. Paid a $1,100 cash dividend to the stockholders.
6. Acquired an additional $21,000 cash from the issue of common stock.
7. Paid $10,000 cash to reduce the principal balance of the bank note.
8. Paid $54,000 cash to purchase land.
9. Determined that the market value of the land is $76,000.

a. Use a horizontal statements model to show how each event affects the balance sheet, income statement, and statement of cash flows. Also, in the Cash Flows column, classify the cash flows as operating activities (OA), investing activities (IA), or financing activities (FA), net change in cash (NC) and NA to indicate the element is not affected by the event. The first event is shown as an example. (Enter any decreases to account balances and cash outflows with a minus sign.)
Event No. MABEN COMPANY Horizontal Statements Model for Year 1 Balance Sheet Income Statement = Liabilities + Stockholders' Equity Net Notes Common Retained Revenue Expense = Income Payable Stock Earnings 31,000 + Assets Statement of Cash Flows Cash + Land II + 31,000 + + 31,000 FA 1. 2. ++ 3. +++ + + + 4. 5. + 6. 7. 8. 9. Total 31,000+ 0 = 01+ 31,000+ 0 0 0= 0 31,000

b. Determine the amount of total assets that Maben would report on the December 31, Year 1, balance sheet.

Answer 1

a)

					Maben Company
Event	Asset		=	Liabilities	+ Stockholder's Equity			Income Statement		Cash Flow
	Cash	Land		Note Pables	Common Stock	+ Retained Earnings	Revenue	- Expense	=Net Income
1	31000				31000					31000	FA
2	39000			39000						39000	FA
3	49000					49000	49000		49000	49000	OA
4	-45500					-45500		45500	-45500	-45500	OA
5	-1100					-1100				-1100	FA
6	21000				21000					21000	FA
7	-10000			-10000						-10000	FA
8	-54000	54000								-54000	IA
9	NA	NA									NA
	29400	54000		29000	52000	2400	49000	45500	3500	29400

b) Total assets that Maben would report on the December 31, Year 1, balance sheet. Cash + Land =29400+54000=83400

Notes

1) Issue of stock will bring cash hence increase in cash as well as Equity Share . As issue of common stock is raising fund hence will comes under Financial activity in Cash flow statement , as issue of common stock brings cash Cashflow will increase

2) Borrowing from Nationalise bank will create Liability hence liability will increase as Note Payable , as borrowing will bring cash , Assets will also increase . Raising of fund is financial activity hence it will be shown in cash Flow statement under financial activity.

3)Earned renued in cash , hence cash will be debit and will cause increase in asset . As revenue shown on income statement and at closing date Net income transfer to Retained earnings hence it will increase Stockholders equity . Revenue is the income from operation hence shown under Operating Activity in Cash flow Statetement

4)Same treatment for expenses , expenses is causing cash outflow , hence cash or Asset will decrease and as Expense is part of income statement it will decrease income and hence will affect retained earnings under Stockholders equity.

5)Divident are declared and paid out of profit ie retained earning . Divident are not the exoenses but liabilty of Company against Stockholder , hence dividend wil no reflect in income statement but reduce from Retained earnings . As this divident are paid in Cash , Cash / Assets will reduce. Divident are part of Stockholders equity , hence payment of it will come under Financial Activity in Cashflow Statement.

7) Payment of loan liability will reduce Liabilty side and as paid in cash Assets Cash side will also reduce . As Loan us Financial Activity , it will be shown in Financial Activity by negative value as causing decrease in cash.

8. Purchase of land will increase Assets as well as decrease . As purchase in cash , cash balance will reduce by that amount and Land will be debited . Land are investment Activity under Cash flow statement and will be shown in negative as causing outflow of cash.

9. Determinnin the market value of land will not affect any balance , it will be affected if company revalue its assets and booked it in their book. Hence there will be no effect on any statement.