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17 December, 13:39

The following events occurred for Favata Company: a. Received $10,000 cash from owners and issued stock to them. b. Borrowed $7,000 cash from a bank and signed a note due later this year. c. Bought and received $800 of equipment on account. d. Purchased land for $12,000; paid $1,000 in cash and signed a long-term note for $11,000. 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. (Enter all amounts as positive values.)

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  1. 17 December, 14:30
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    (a)

    Increase in Cash of $10,000 and Increase in Common Stock account of $10,000

    Asset increases by $10,000; Owner's equity increases by $10,000. Accounting equation remains in balance.

    (b)

    Increase in Cash of $7,000 and Increase in Short-term Note Payable account of $7,000

    Asset increases by $7,000; Liability increases by $7,000. Accounting equation remains in balance.

    (c)

    Increase in Fixed Asset of $800 and Increase in Account Payable account of $800

    Asset increases by $800; Liability increases by $800. Accounting equation remains in balance.

    (d)

    Increase in Fixed Asset of $12,000, Decrease in Cash of $1,000 and Increase in Long-term Note Payable account of $11,000

    Asset increases by $11,000; Liability increases by $11,000. Accounting equation remains in balance.

    (e)

    Increase in Fixed asset of $3,000, Decrease in Cash of $1,000 and Increase in Account Payable account of $2,000

    Asset increases by $2,000; Liability increases by $2,000. Accounting equation remains in balance.

    Explanation:

    Explanation is given in Answer part
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