At the beginning of 2013, Foster Corp.%u2019s accounting records had the followi
ID: 2376767 • Letter: A
Question
At the beginning of 2013, Foster Corp.%u2019s accounting records had the following general ledger accounts and balances.
Foster Corp. completed the following transactions during 2013:
1. Purchased land for $20,000 cash.
2. Acquired $10,000 cash from the issue of common stock.
3. Received $90,000 cash for providing services to customers.
4. Paid cash operating expenses of $65,000.
5. Borrowed $20,000 cash from the bank.
6. Paid a $5,000 cash dividend to the stockholders.
7. Determine that the market value of the land purchased in event 1 is $30,000.
Explanation / Answer
1/1/213 Balances
Land = $30,000
Cash = $16,000
Total Assets = ($30,000 + $16,000) = $46,000
Total Liability + Stockholders Equity = (notes Payable = $10,000; Common Stock $20,000; Retained Earnings = $16,000) = $46,000
1. Land ................................$20,000
Cash.................................................... $20,000
(Purchased land with cash)
2. Cash ................................$10,000
Common Stock .................................$10,000
(Issued stock for cash)
3. Cash.................................$90,000
Service Revenue...............................$90,000
(Recieved cash payment for service provided)
4. Operating Expense.......$65,000
Cash .....................................................$65,000
(Paid cash for operating expense)
5. Cash..................................$20,000
Notes payable....................................$20,000
(Borrowed money from the bank)
6. Dividend ...........................$5,000
Cash.....................................................$5,000
(Paid cash dividend)
7. Land ..................................$10,000
Unrealized gain ................................$10,000
NEW BALANCES:
Total Assets:
Land = $60,000 ($30,000 + $20,000 + $10,000); Cash = $46,000($16,000 - $20,000 + $10,000 + $90,000 - $65,000 + $20,000 - $5,000) = $60,000 + $46,000 = $106,000
Total liability and stockholders' equity:
Notes payable = $30,000($10,000 + $20,000); Common stock = $30,000 ($20,000 + $10,000); Retained Earnings = $46,000 ($16,000 + $25,000 - $5,000 + $10,000) = $106,000
The $25,000 added to the retained eraning accounts came from the profit from service revenue of $90,000 minus the total operating expense of $65,000 (90,000 - 65,000) = $25,000.
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