Question

Check my work 9 Madison Shoes manufactures athletic shoes and sports apparel. The following activities occurred during a recent year. The dollar amounts in (a) and (b) are presented in millions," and the dollar amount in (c) is per share. When reporting amounts 'in millons." exclude the 000,000 2. points a. Purchased $228 in equipment, paid by signing a $4 long-term note and fulfilling the rest with cash. b. Issued $25 in additional common stock for cash contributions made by stockholders. c. Several Madison Shoes Investors sold their own stock to other investors on the stock exchange for $170 per share of stock Hint Required: 1. For each of these events, perform transaction analysis and indicate the account, amount (in millions), and direction of the effect on the accounting equation. Check that the accounting equation remains in balance after each transaction. (Enter any decreases to account balances with a minus sign. Enter your answers in millions (l... 10,000,000 should be entered as 10).) Event Assets Liabilities Stockholders' Equity References b Totals

Answer 1

Let's first understand the effects of each transaction

1. Purchased $228m of equipment, by $4m of long term note and balance in cash.
   Journal Entry would be-
   Equipment (Asset).............. Dr. 228
   To Note Payable (Liability).......... 4
   To Cash (Asset)....................... 224 [228 - 4]
   
2. Issued $25m common stock for cash contributions made by stockholders.
   Journal Entry would be-
   Cash (Asset)...................... Dr. 25
   To Common Stock (Equity)...... 25
   
3. Investors sold their own stock in the market to other investors.
   There is no Journal Entry required since the company is not affected by this transaction between 2 or more investors. The company records the transaction and take effect to only those which directly affect the company.

Answers to Question

1. Transaction Analysis and presentation

Event	Assets	=	Liabilities	+	Stockholder's Equity
a	Equipment	+228		Note Payable	+4
	Cash	-224
b	Cash	+25					Common Stock	+25
c	NA			NA			NA
	Totals	+29			+4			+25

2. Best Description of transaction (c)
Option 1: Transaction (c) occurs between the owners and others in the stock market, there is no effect on the business.

3. Reliability on stockholders vs. creditors
Option 3: Yes - the transaction affected liabilities and stockholder's equity, and they led Madison shoes to rely to a greater extent on stakeholders (versus creditors).
It can be simply observed by the increase in equity.