Determining Financial Statement Effects of Various Transactions
East Hill Home Healthcare Services was organized by four friends who each invested $10,000 in the company and, in turn, was issued 8,000 shares of $1.00 par value stock. To date, they are the only stockholders. At the end of last year, the accounting records reflected total assets of $700,000 ($50,000 cash; $500,000 land; $50,000 equipment; and $100,000 buildings), total liabilities of $200,000 (short-term notes payable $100,000 and long-term notes payable $100,000), and stockholders’ equity of $500,000 ($20,000 common stock. $80,000 additional paid-in capital, and $400,000
a. Sold 9,000 additional shares of stock to the original organizers for a total of $90,000 cash.
b. Purchased a building for $60,000.equipment for $15,000, and four acres of land for $14,000; paid $9,000 in cash and signed a note for the balance (due in 15 years). (Hint: Five different accounts are affected.)
c. Sold one acre of land acquired in (b) for $3,500 cash to another company.
d. Purchased short-term investments for $18,000 cash.
e. One stockholder reported to the company that 300 shares of his East Hill stock had been sold and transferred to another stockholder for $3,000 cash.
f. Lent one of the shareholders $5,000 for moving costs and received a signed six-month note from the shareholder.
Required:
1. Was East Hill Home Healthcare Services organized as a sole proprietorship, a
2. During the current year, the records of the company were inadequate. You were asked to prepare the summary of transactions shown above. To develop a quick assessment of their economic effects on East Hill Home Healthcare Services, you have decided to complete the tabulation that follows and to use plus (+) for increases and minus (−) for decreases for each account. The first event is used as an example.
ASSETS | = | LIABILITIES | + | STOCKHOLDERS’ EQUITY | |||||||||
Cash | Short-Term Investments | Notes Receivable | Land | Buildings | Equipment | Short-Term Notes Payable | Long-Term Notes Payable | Common Stock | Additional Paid-in Capital | Retained Earnings | |||
Beg. (a) | 50,000 + 90,000 | 500,000 | 100,000 | 50,000 | = = |
100,000 | 100000 | 20,000 + +9,000 | 80,000 +81,000 | 400,000 |
3. Did you include the transaction between the two stockholders—event (e)—in the tabulation? Why?
4. Based only on the completed tabulation, 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.
- d. Cash balance at the end of the year.
- e. Total current assets at the end of the year.
5. Compute the
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Financial Accounting
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