Chapter 2, Problem 4E

Determining Financial Statement Effects of Several Transactions

The following events occurred for Favata Company:

1. a. Received $10,000 cash from owners and issued stock to them.
2. b. Borrowed $7,000 cash from a bank and signed a note due later this year.
3. c. Bought and received $800 of equipment on account.
4. d. Purchased land for $12.000; paid $1.000 in cash and signed a long-term note for $11.000.
5. e. Purchased $3.000 of equipment, paid $1.000 in cash and charged the rest on account.

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