Question

In: Accounting

Mallard Incorporated (MI) is a small manufacturing company that makes model trains to sell to toy...

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?

Solutions

Expert Solution

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


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