Question

The following events occurred for Johnson Company:

a. Received investment of cash by organizers and distributed to them 1,180 shares of $1 par value common stock with a market price of $15 per share.
b. Purchased $8,200 of equipment, paying $1,500 in cash and owing the rest on accounts payable to the manufacturer.
c. Borrowed $14,000 cash from a bank. Loaned $800 to an employee who signed a note.
d. Purchased $20,343 of land; paid $9,000 in cash and signed a note for the balance.

Required:
For each of the events (a) through (d), perform transaction analysis and indicate the account, amount, and direction of the effect (increase or decrease) on the accounting equation.

Answer 1

a. Received investment of cash by organizers and distributed to them 1,180 shares of $1 par value common stock with a market price of $15 per share.

Account Debit Credit

Cash $17,700

Common Stock $1,180

Additional Paid-In Capital $16,520

Assets increase, and stockholder's equity increase by the same amount: $17,700.

b. Purchased $8,200 of equipment, paying $1,500 in cash and owing the rest on accounts payable to the manufacturer.

Account Debit Credit

Equipment $8,200

Cash $1,500

Accounts Payable $6,700

Assets increase by a net $6,700 (Equipment - Cash), and Accounts Payable by $6,700 as well.

c. Borrowed $14,000 cash from a bank. Loaned $800 to an employee who signed a note.

Account Debit Credit

Cash $14,000

Notes Payable $14,000

Notes Receivable $800

Cash $800

Assets increase by a net $14,000 (Cash + Notes Receivable - Cash), and liabilities increase by $14,000

d. Purchased $20,343 of land; paid $9,000 in cash and signed a note for the balance.

Account Debit Credit

Land $20,343

Cash $9,000

Notes Payable $11,343

Assets increase by a net $11,343 (Land - Cash), and liabilities increase by the same amount.