Question

1.Assuming the activities in Exhibit 1 actually take place prepare a balance sheet as of the completion of item 5. To do so, draw up a basic balance sheet format and make entries to the appropriate accounts for each event. Leave sufficient space below each asset, liability, and equity account to make several entries.

Item Number Description Amount 1 Investment by the former patient $50,000 2 Equity for Dr. Black in exchange for patent 25,000 3 Purchase of machinery in cash to manufacture the device (Estimated life 10 years; no salvage value) 40,000 4 Purchase of raw material inventory (in cash) 15,000 5 Loan (5 years at 10 percent) 20,000

Answer 1

Solution: Entries for event

Item No.	Account Title	Debit	Credit
1	Cash	$        50,000
	Equity		$        50,000
	( Being Equity issued)
2	Patent	$        25,000
	Equity		$        25,000
	( Being patent bought)
3	Machinery	$        40,000
	cash		$        40,000
	(Being machinery purchased)
4	Inventory	$        15,000
	Cash		$        15,000
	(Being inventory purchased)
5	Cash	$        20,000
	Loan		$        20,000
	( Being long term loan taken)

Balance sheet

Balance Sheet
Current assets:		Long-term liabilities
Cash	$15,000	Loan	$20,000
(50000-40000-15000+20000)		Stockholder's equity:
Inventory	$15,000	Equity( Common/Preferred Stock)	$75,000
Property,plant, and equipment:		(50000+25000
Machinery	$40,000
Intangible Assets
Patent	$25,000
Total Assets	$95,000	Total Liabilities	$95,000

Note:

1) In first event, it is given a former patient made at investment, investment in a business means taking equity.

2) In fifth event, there just mentioned about loan amount but no discuss whether it is loan taken or made to outsider. So it is considered as loan taken. As it is 10 years, so it is a long term loan.