Question

Mulkeen Service Company, Inc., was incorporated by Conor Mulkeen and five other managers. The following activities occurred during the year:

a. Received $48,000 cash from the managers; each was issued 1,200 shares of common stock.
b. Purchased equipment for use in the business at a cost of $8,400; one-fourth was paid in cash and the company signed a note for the balance (due in six months).
c. Signed an agreement with a cleaning service to pay it $70 per week for cleaning the corporate offices, beginning next year.
d. Conor Mulkeen borrowed $15,000 for personal use from a local bank, signing a one-year note.

Required:
a. Create T-accounts for the following accounts: Cash, Equipment, Note Payable, and Contributed Capital.
b. Using the balances in the T-accounts, fill in the following amounts for the accounting equation:

Assest $_______ = Liabilities$ _______ + Stockholders Equity $_______

c. Explain your response to events (c) and (d).

Answer 1

Answer:

a)

cash                                             common stock

48,000                                                         48,000

                2,100

45,900              

equipment                                 note payable

8,400                                                           6,300

b)

Assets                       =     Liabilities        +           Equity

$54,300                           $6,300                        $48,000

c)

there is no transaction in (c) and the corporation is a separate entity and Conor's personal accounts are not part of it.