In: Accounting
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 $520,000 and
total liabilities of $210,000. During the current year, the
following summarized events occurred:
Issued additional shares of common stock for $75,000 cash.
Borrowed $125,000 cash from the bank and signed a 10-year
note.
Built an addition on the buildings for $180,000 and paid cash to
the contractor.
Purchased equipment for the new addition for $37,500, paying $3,750
in cash and signing a note for the balance due in two years.
Returned a $3,750 piece of equipment, from (d), because it proved
to be defective; received a reduction of the notes payable.
Purchased a delivery truck (equipment) for $11,750; paid $8,225
cash and signed a two-year note for the remainder.
A stockholder sold $6,950 of his stock in Mallard Incorporated to
his neighbor.
Required:
1. Complete the spreadsheet that follows. The first transaction is
used as an example.
3. Based on beginning balances plus the completed spreadsheet,
provide the Total assets, liabilities and stockholders' equity at
the end of year.
4. As of the current year-end, has the financing for MI’s
investment in assets primarily come from liabilities or
stockholders’ equity?
1.Answer:
Particulars | Total assets | Total liabilities | Stock holder's equity |
Opening balances | $520,000 | $210,000 | $310,000 |
a.Issue of additional shares Increase in cash Increse in equity |
+$75,000 | +$75,000 | |
b.Amount borrowed on 10 year note | +$125,000 | +$125,000 | |
c.Addition to buildings Decrese in cash |
+$180,000 -$180,000 |
||
d.Equipment purchased Cash paid Note issued for remaining amount |
+$37,500 -$3,750 |
+$33,750 | |
e. Equipment returned | -$3,750 | -$3,750 | |
f. Purchase of delivery truck Decrease in cash |
+$11,750 -$8,225 |
+$3,525 | |
Closing balances | $753,525 | $368,525 | $385,000 |
3. Closing balance of total assets at the end of the year = $753,525
Closing balance of total liabilities at the end of the year = $368,525
Closing balance of stock holders equity at the end of the year =$ 385,000
4. Assets are primarily come from stockholders equity because $385,000 of stockholders equity are invested in assets compared to liabilities of 368,525