Determining Financial Statement Effects of VariousTransactions Lester\'s Home He

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Determining Financial Statement Effects of VariousTransactions Lester's Home Healthcare Sevices (LHHS) was organized onJanuary 1, 2005 by four friends. Each organizer invested$10,000 in the company and, in turn, was issued 8,000 shares ofstock. To date, they are the only stockholders. Duringthe first month (January 2005), the company had the following sixevents: a) collected a total of $40,000 from the organizersand, in turn, issued the shares of stock. b) purchased a buildingfor $65,000, equipment ofr $16,000 and three acres of land for$12,000; paid $13,000 in cash and signed anote for the balance,which is due to be paid in 15 years.c) one stockholder reported tothe company that 500 shares of his Lester's stock had been sold andtransferred to another stockholder for $5,000 cash. d) purchasedsupplies for $3,000 cash. e) sold one acre of land for $4,000 cashto another company f) lent one of the shareholders $5,000 formoving costs, receiving a signed six-month note from theshareholder. For b what five different accounts are affected? For c hasthis trasaction caused LHHS to give or receive anything? For fwhat has LHHS given up and what has it received? 1. Was Lester's Home Healtchare Services roganized asapartnership or corporation? 2. During the first month, the records of the companywere inadequate. Prepare the summary for precedingtransactions. To develop a quick assessment of their economiceffects on Lester's Home Healthcare Services, complete thespreadsheet that folows and use plus for increases and minus fordecreases for each account. The first account a) is given asan example.                                                       Assets                              =  Liabilities + Stockholders' Equity                                        Notes         Cash   Supplies  Receivable Land Building Equipment =  Notes        Contrib.         Retained                                                                                                   Payable      Capital           Earned (a)+40,000                                                                                                  +40,000 3. Did you include the transaction between the twostockhoders - event c - in the spreadsheet? Why? 4. Based only on the completed spreadsheet,provide thefollowing amounts (show computations):       a) total assets at the end ofthe month, b) total liabilities at the end of the month, c) totalstockhoders' equity at the end of the month, d) cash balance at theend of the month, e) total current assets at the end of themonth. 5. As of January 31, 2005, has the financing for LHHS'Sinvestment in assets primarily come from liabilities orstockhoders' equity? Determining Financial Statement Effects of VariousTransactions Lester's Home Healthcare Sevices (LHHS) was organized onJanuary 1, 2005 by four friends. Each organizer invested$10,000 in the company and, in turn, was issued 8,000 shares ofstock. To date, they are the only stockholders. Duringthe first month (January 2005), the company had the following sixevents: a) collected a total of $40,000 from the organizersand, in turn, issued the shares of stock. b) purchased a buildingfor $65,000, equipment ofr $16,000 and three acres of land for$12,000; paid $13,000 in cash and signed anote for the balance,which is due to be paid in 15 years.c) one stockholder reported tothe company that 500 shares of his Lester's stock had been sold andtransferred to another stockholder for $5,000 cash. d) purchasedsupplies for $3,000 cash. e) sold one acre of land for $4,000 cashto another company f) lent one of the shareholders $5,000 formoving costs, receiving a signed six-month note from theshareholder. For b what five different accounts are affected? For c hasthis trasaction caused LHHS to give or receive anything? For fwhat has LHHS given up and what has it received? 1. Was Lester's Home Healtchare Services roganized asapartnership or corporation? 2. During the first month, the records of the companywere inadequate. Prepare the summary for precedingtransactions. To develop a quick assessment of their economiceffects on Lester's Home Healthcare Services, complete thespreadsheet that folows and use plus for increases and minus fordecreases for each account. The first account a) is given asan example.                                                       Assets                              =  Liabilities + Stockholders' Equity                                        Notes         Cash   Supplies  Receivable Land Building Equipment =  Notes        Contrib.         Retained                                                                                                   Payable      Capital           Earned (a)+40,000                                                                                                  +40,000 3. Did you include the transaction between the twostockhoders - event c - in the spreadsheet? Why? 4. Based only on the completed spreadsheet,provide thefollowing amounts (show computations):       a) total assets at the end ofthe month, b) total liabilities at the end of the month, c) totalstockhoders' equity at the end of the month, d) cash balance at theend of the month, e) total current assets at the end of themonth. 5. As of January 31, 2005, has the financing for LHHS'Sinvestment in assets primarily come from liabilities orstockhoders' equity?

Explanation / Answer

Chippy Chippy Assets Liabilities Stockholders' Equity 1 Cash 40,000.00 Contributed Capital 40,000.00 Retained Earnings 2 Land 12,000.00 Notes Payable 80,000.00 Building 65,000.00 Equipment 16,000.00 Cash (13,000.00) 3 No effect 4 Supplies 3,000.00 Cash (3,000.00) 4 Cash 4,000.00 Land (4,000.00) Cash (5,000.00) Note Receivable 5,000.00 3 The transaction in 3 is just between twostockholders . It does not affect the elements of accountingequation . Hence it is not included . a Total Assets 120,000.00 b Total Liabilities 80,000.00 c Total Stockholders' Equity 40,000.00 d Cash Balance 23,000.00 e Current Assets 31,000.00

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