Question

You and a friend each put in $20,000 to capitalize the corporation (and you each get...

You and a friend each put in $20,000 to capitalize the corporation (and you each get 10,000 shares). That’s $40,000 total.

o You buy a truck for $20,000.

o You take out a loan for $5,000 in cash.

What does the balance sheet look like? Explain each transaction as a separate event.

At the end, what are your total assets? What are your total liabilities? What is your shareholder equity?

Business   Accounting   
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Answer #1

The balance sheet looks like that it shows the financial position of the business on a particular day.

Investing cash into the business is the first event so the cash is increases and capital also increases.

Purchasing truck for the business is an asset purchase transaction which is to be used in the business. So a fixed asset increases and cash as asset decreases.

Taking loan from bank is a normal activity that is seen in business to continue their business more fluently. So cash increases and a liability also increases.

In first event,

Assets = $ 40,000.

Shareholders equity = $ 40,000.

In second event,

Assets = 20,000 - 20,000

Assets = $ 0

In third event,

Assets = $ 5,000

Liabilities = $ 5,000

Total assets = 40,000 + 5,000

Total assets = $ 45,000

Total liabilities = $ 5,000

Total shareholders equity = $ 40,000

SUMMARY:

All requirements have been provided.

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