Chapter 2, Problem 2.1PA

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 previous year, the accounting records reflected total assets of $500,000 and total liabilities of $200,000. During the current year, the following summarized events occurred:

1. a. Issued additional shares of common stock for $100,000 cash.
2. b. Borrowed $120,000 cash from the bank and signed a 10-year note.
3. c. Built an addition on the buildings for $200,000 and paid cash to the contractor.
4. 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.
5. e. Returned a $3,000 piece of equipment, from (d), because it proved to be defective; received a reduction of the note payable.
6. f. Purchased a delivery truck (equipment) for $10,000; paid $7,000 cash and signed a nine- month note for the remainder.
7. g. A stockholder sold $5,000 of his stock in Mallard Incorporated to his neighbor.

Required:

1. 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.

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