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Reporting Investing and Financing Results on the Balance Sheet

GROUP A PROBLEMS

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.

Reporting Investing and Financing Results on the Balance Sheet

f. Purchased a delivery truck (equipment) for $10,000; paid $5,000 cash and signed a nine month 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. Using Excel 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 Receivable Equipment Building = Payable Capital Earnings
(a)+100,000 = +100,000

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 investments in assets primarily come from liabilities or stockholders' equity?

See attachment.

Attachments

Solution Preview

Assets = Liabilities + Stockholders' Equity
------------------------------------------------ ----------------------------------------------
Notes Notes Contributed Retained
Cash Receivable Equipment Building Note = Payable Capital Earnings
(a)+100,000 = ...

Solution Summary

This solution determines financial statement effects of various transactions and also reports on investing and financing results on the balance sheet in an enclosed Excel file. All workings and formulas are used.

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