Financial Statement Effects of Various Transactions

The Problems are:
1.
PB2-1 Determining Financial Statement Effects of Various Transactions
Swish Watch Corporation manufactures, sells, and services expensive, ugly watches. The company has been in business for three years. At the end of the most recent year, 2006, the accounting records reported total assets of $2,255,000 and total liabilities of $1,780,000. During the current year, 2007, the following summarized events occurred:
a. Issued additional shares of stock for $109,000 cash.
b. Borrowed $186,000 cash from the bank and signed a 10-year note.
c. A stockholder sold $5,000 of his capital stock in Swish Watch Corporation to another investor.
d. Built an addition on the factory for $200,000 and paid cash to the construction company.
e. Purchased equipment for the new addition for $44,000, paying $12,000 in cash and signing a six-month note for the balance.
f. Returned a $4,000 piece of equipment, from e, because it proved to be defective; received a cash refund.
g. At the end of 2006, lent $2,000 cash to the company president, Thor Gunnarson, who signed a note with terms requiring repayment of the loan in one year.
Required:
1. Complete the spreadsheet that follows, using plus () for increases and minus () for
decreases for each account. The first transaction is used as an example.

Assets = Liabilities + Stockholders' Equity
__________________________________ _________ __________________
Notes Notes Contributed Retained
Cash Reseivable Equipment Building = Payable Capital Earnings
(a) + 109,000
2. Did you include event c in the spreadsheet? Why?
3. Based on beginning balances plus the completed spreadsheet, provide
(show computations):
a. Total assets at the end of the year.
b. Total liabilities at the end of the year.
c. Total stockholders' equity at the end of the year.
4. As of December 31, 2007, has the financing for Swish Watch
assets primarily come from liabilities or stockholders' equity?

2.
CP2-1 Determining Financial Statement Effects of Various Transactions
Lester's Home Healthcare Services (LHHS) was organized on January 1, 2005, by four friends.
Each organizer invested $10,000 in the company and, in turn, was issued 8,000 shares of stock. To date, they are the only stockholders. During the first month (January 2005), the company had the following six events:
a. Collected a total of $40,000 from the organizers and, in turn, issued the shares of stock.
b. Purchased a building for $65,000, equipment for $16,000, and three acres of land for $12,000; paid $13,000 in cash and signed a note for the balance, which is due to be paid in 15 years.
c. One stockholder reported to the company that 500 shares of his Lester's stock had been sold and transferred to another stockholder for $5,000 cash.
d. Purchased supplies for $3,000 cash.
e. Sold one acre of land for $4,000 cash to another company.
f. Lent one of the shareholders $5,000 for moving costs, receiving a signed six-month note from the shareholder.
Required:
1. Was Lester's Home Healthcare Services organized as a partnership or corporation? Explain
the basis for your answer.
2. During the first month, the records of the company were inadequate. You were asked to
prepare the summary of the preceding transactions. To develop a quick assessment of their
economic effects on Lester's Home Healthcare Services, you have decided to complete the
spreadsheet that follows and to use plus () for increases and minus () for decreases for
each account. The first transaction is used as an example.
Assets = Liabilities + Stockholders' Equity
___________________________________________ ________ __________________
Notes Notes Contributed Retained
Cash Supplies Receivable Land Building Equipment Payable Capital Earnings
(a)+40000 = +40000
3. Did you include the transaction between the two stockholders?event c?in the spreadsheet?
Why?
4. Based only on the completed spreadsheet, provide the following amounts (show
computations):
a. Total assets at the end of the month.
b. Total liabilities at the end of the month.
c. Total stockholders' equity at the end of the month.
d. Cash balance at the end of the month.
e. Total current assets at the end of the month.
5. As of January 31, 2005, has the financing for LHHS's investment in assets primarily come
from liabilities or stockholders' equity?

3.
PA2-1 Determining Financial Statement Effects of Various Transactions
Mallard Incorporated (MI) is a small manufacturing company that makes model trains to sell to
toy stores. It has a small service department that repairs customers' trains for a fee. The company has been in business for five years. At the end of the most recent year, 2005, the accounting records reflected total assets of $500,000 and total liabilities of $200,000. During the current year, 2006, the following summarized events occurred:
a. Issued additional shares of stock for $100,000 cash.
b. Borrowed $120,000 cash from the bank and signed a 10-year note.
c. Built an addition on the factory for $200,000 and paid cash to the contractor.
d. Purchased equipment for the new addition for $30,000, paying $3,000 in cash and signing a
note due in six months for the balance.
e. Returned a $3,000 piece of equipment, from d, because it proved to be defective; received a reduction of the note payable.
f. Purchased a delivery truck (equipment) for $10,000; paid $5,000 cash and signed a ninemonth note for the remainder.
g. At the end of 2006, lent $2,000 cash to the company president, Jennifer Mallard, who signed
a note due in one year.
h. A stockholder sold $5,000 of his capital stock in Mallard Incorporated to his neighbor.
Required:
1. Complete the spreadsheet that follows, using plus () for increases and minus () for
decreases for each account. The first transaction is used as an example.
Assets = Liabilities + Stockholders' Equity
___________________________________________ ________ __________________
Notes Notes Contributed Retained
Cash Supplies Receivable Land Building Equipment Payable Capital Earnings
(a)+ 100000 = +100000

2. Did you include event h in the spreadsheet? Why or why not?
3. Based on beginning balances plus the completed spreadsheet, provide the following amounts
(show computations):
a. Total assets at the end of the year.
b. Total liabilities at the end of the year.
c. Total stockholders' equity at the end of the year.
4. As of December 31, 2006, has the financing for MI's investment in assets primarily come from liabilities or stockholders' equity?