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Transaction analysis

The following events occurred for Favata Company:
a. Received $20,000 cash by organizers and issued stock to them.
b. Borrowed $6,000 cash from a bank.
c. Purchased land for $12,000; paid $1,000 in cash and signed a note for the balance.
d. Loaned $300 to an employee who signed a note.
e. Purchased $8,000 of equipment, paying $1,000 in cash and signing a note for the rest.
Required:
For each of the events a through e, perform transaction analysis and indicate the account, amount, and direction of the effect (_ for increase and _ for decrease) on the accounting equation. Check that the accounting equation remains in balance after each transaction. Use the following headings:
Event Assets _ Liabilities _ Stockholders' Equity

Solution Preview

The following events occurred for Favata Company:
a. Received $20,000 cash by organizers and issued stock to them.

Assets: Increase by $20000 (Cash A/c Will increase)
Liabilities: No effect
Owner's (or Stockholders') Equity: Increase by $20000

b. Borrowed $6,000 cash from a bank.

Assets: Increase by $6000 ...

Solution Summary

This provides the method of doing transaction analysis. The events which occurred for Favata Company are determined.

$2.19