Determining FinancialStatement Effects of Various Transactions Lester’s HomeHeal
ID: 2446509 • Letter: D
Question
Determining FinancialStatement Effects of Various Transactions
Lester’s HomeHealthcare Services (LHHS) was organized on January 1, 2005, byfour friends.
Each organizer invested$10,000 in the company and, in turn, was issued 8,000 shares ofstock. To
date, they are the onlystockholders. During the first month (January 2005), the companyhad the
following sixevents:
a.Collected a total of$40,000 from the organizers and, in turn, issued the shares ofstock.
b.Purchased a buildingfor $65,000, equipment for $16,000, and three acres of land for$12,000;
paid $ 13,000 in cashand signed a note for the balance, wich is due to be paid in 15years.
c.One stockholderreported to the company that 500 shares of his Lester’s stockhad been sold
and transferred toanother stockholder for $5,000 cash.
d.Purchased suppliesfor $3,000 cash.
e.Sold one acre of landfor $4,000 cash to another company.
f.Lent one of theshareholders $5,000 for moving costs, receiving a signed six-monthnote from the shareholder.
Required:
1.Was Lester’sHome Healthcare Services organized as a partnership or corporation?Explain the basis for your answer.
2.During the firstmonth, the records of the company were inadequate. You were askedto prepare
the summary of thepreceding transactions. To develop a quick assessment of theireconomic effects on Lester's Home Healthcare Services, you havedecide to complete the spreadsheet that follow and use (+) forincrease and munus(-) for decrease for each account. The firsttransaction is used an example.
Assets = Liabilities+ Stockholders' Equity
3.Did you include thetransaction between the two stockholders - event c- in thespreadsheet? Why?
4.Based only on thecompleted spreadsheet, provide the following amounts (showcomputations):
a.Total assets at theend of the month.
b.Total liabilities atthe end of the month.
c.Totalstockholders’ equity at the end of themonth.
d.Cash balance at theend of the month.
e.Total current assetsat the end of the month.
5.As of January 31,2005, has the financing for LHHS’s investment in assetsprimarily come from liabilities or stockholders' equity?
Explanation / Answer
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
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.