Chapter 2, Problem 12E

Analyzing the Effects of Transactions Using T-Accounts; Preparing and Interpreting a Balance Sheet

Laser Delivery Services. Inc. (LDS) was incorporated January 1. The following transactions occurred during the year:

1. a. Received $40,000 cash from the company’s founders in exchange for common stock.
2. b. Purchased land for $12,000, signing a two-year note (ignore interest).
3. c. Bought two used delivery trucks at the start of the year at a cost of $10,000 each; paid $2,000 cash and signed a note due in three years for $18,000 (ignore interest).
4. d. Paid $2,000 cash to a truck repair shop for a new motor, which increased the cost of one of the trucks.
5. e. Stockholder Jonah Lee paid $300,000 cash for a house for his personal use.

Required:

1. 1. Analyze each item for its effects on the accounting equation of LDS for the year ended December 31.

TIP: Transaction (a) is presented below as an example.

TIP: The new motor in transaction (d) is treated as an increase to the cost of the truck.

1. 2. Record the effects of each item using a journal entry.

TIP: Use the simplified journal entry format shown in the demonstration case on page 69.

1. 3. Summarize the effects of the journal entries by account, using the T-account format shown in the chapter.
2. 4. Prepare a classified balance sheet for LDS at December 31.
3. 5. Using the balance sheet, indicate whether LDS’s assets at the end of the year were financed primarily by liabilities or stockholders’ equity.