19653383 1516603841918 2.50 point E2-5 Determining Financial Statement Effects o

Question

19653383 1516603841918 2.50 point E2-5 Determining Financial Statement Effects of Several Transactions [LO 2-1, LO 2-2, LO 2-5 NKE, Inc. with headquarers in Beaverton, Oregon, is one of the wolds leading manufacturers of anletc shoes and sports apparel. The following activisies occurred during a recent year The amounts are presented in milions of dollars a Purchased $218 in equipment; paid by signing a $5 long-term note and fuifiting the rest with cash b. bsued $21 in additional common stock for cash contributions made by stockholders c Several NIKE investors sold their own stock to other investors on the stock exchange for $110 per share of stock . For each of these events perform transaction analysis and indicate the account, amount (in millions), and direction of belance afher each trensaction (Enter any decreases to account balances with a minus sign. Enter the effect on the accounting equation. Check that What will be your response to transaction (e

Explanation / Answer

I provide you with a detailed transaction analysis of the prescribed events.

Event no.1:Purchased $216 in equipment and paid by signing a $5 long term note and remaining in cash:

We can understand the transaction anlysis by the help of an journal entry of the transaction:

Journal entry is as follows:

Equipment A/c Dr $216

To Long term note A/c $5

To Cash A/c $211

This means that Our Fixed assets increased by $216 accompained by a decrease in Current assets of $211 and also a increase in long term liabilities by $5. This implies that we have net increase in assets to the extent of $216 - $211 = $5 and also as stated earlier increase in liabilities by $5. Therefore the amount of stock holders equity remains unaffected. This can be presented as follows:

Event No.2 :Issues $21 additional Common stock for cash contributed by stockholders.

Journal Entry:

Cash A/c Dr $21

To Stockholders Equity $21

The transaction results in increase of cash by $21 and also increase in Stock holders equity by $21.No liability is involved and so liablity remains unaffected.

This can be presented as follows:

Event No.3 Sale of NIKE stock by one investor to other investor at a market price of $110 per share of stock

This event does not affect any of the asset, liability or stockholders equity.

Reason: There are two types of stock market. They are primary market and secondary market. In primary market the company directly issues shares to public whereas in secondary market the investors sell the stock among themselves which is in no way connected to the company. The example for a primary market transaction is event no.2 and for secondary market transaction is event no.3.

PS: Please use "Thums Up" if you were contented by my solution and presentation.

Assets Amount Liabilities Amount Stockholders equity Amount Equipment $216 Long term note $5 No change 0 Cash -$211 Total $5 Total $5 Total 0

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