Question

1.Brewster Company is a newly organized company that purchased an existing business. Listed below are events from its first month in business.

For each event, identify the accounts that should be used to record the economic event. You should enter the numbers that correspond to the accounts that should be used, with a comma and space separating each number (e.g., 9, 10).

Your answer will be evaluated based on whether you have included every account that is needed and whether you have incorrectly included any account that is not needed. An account can be used in analyzing more than one event.

Accounts:

1. accounts payable
2. accounts receivable  
3. cash
4. common stock
5. equipment
6. interest payable
7. land
8. notes payable
9. retained earnings – dividends
10. retained earnings – interest expense
11. retained earnings – operating expense
12. retained earnings – sales
13. salaries payable

Event A: Investors contributed cash of $230,000 and were issued shares of stock. Which accounts should be used?

Event B: Brewster purchased equipment for $50,000, paying cash. Which accounts should be used?  

Event C: Brewster signed a note and borrowed $25,000. Which accounts should be used?  

Event D: Brewster recorded sales of $52,000, of which $30,000 were for cash and the remainder were credit sales. Which accounts should be used?  

Event E: Brewster paid operating expenses of $21,000 in cash. Which accounts should be used?  

Event F: Brewster paid a small dividend of $3,000 to shareholders. Which accounts should be used?

2.Review the six events for Brewster Company listed in the previous question and answer the following: What amount should be reported as the “Cash from (used by) Operations” for the period?What amount should be reported as the "Cash from (used by) Financing Activities” for the period?

Answer 1

1)
	Events:
		Accounts	Amount
	A	Cash	$ 230,000.00
		Common Stock	$ 230,000.00
	B	Equipment	$   50,000.00
		Cash	$ (50,000.00)
	C	Cash	$   25,000.00
		Notes Payable	$   25,000.00
	D	Cash	$   30,000.00
		Accounts Receivable	$   22,000.00
		Retained earnings – sales	$   52,000.00
	E	Cash	$ (21,000.00)
		Retained earnings – operating expense	$   21,000.00
	F	Cash	$    (3,000.00)
		Retained earnings – dividends	$     3,000.00

2)	Cash from Operating Activities			$     9,000.00	($ 30000 - $ 21000)
	Cash from Financing Activities			$ 252,000.00	($ 230000 + $ 25000 - $ 3000)