Question

Analyzing the Effects of Transactions Using T-Accounts
Laser Delivery Services, Inc. (LDS), was incorporated January 1. The following transactions occurred during the year:
a. Received $40,000 cash from the company's founders in exchange for common stock
b. Purchased land for $12,000, signing a two-year note (ignore interest).
c. Bought two used delivery trucks at the start of the year at a cost of $10,000 each; paid $2,000 cash and signed a note due in three years for $18,000 (ignore interest),
d. Paid $2.000 cash to a truck repair shop for a new motor, which increased the cost of one of the trucks.
e. Stockholder Jonah Lee paid $300,000 cash for a house for his personal use.
Required:
Analyze each item for its effects on the accounting equation of LDS for the year ended December 31.
Prepare a classified balance sheet for LDC at the end of 2010

Answer 1

Answer:

Laser Delivery Services, Inc. (LDS)

Analyzing the Effects of Transactions Using T-Accounts:

Cash

Date   Accounts Titles            Debit      Credit

a.         Common Stock         $40,000

c.         Delivery Truck                             $2,000

d.         Delivery Truck                               2,000

           Balance                                       36,000

Common Stock

Date   Accounts Titles            Debit      Credit

a.        Cash                                           $40,000

Land

Date   Accounts Titles            Debit      Credit

b.       Note Payable               $12,000

Note Payable

Date   Accounts Titles            Debit      Credit

b.        Land                                           $12,000

c.        Delivery Truck                              18,000

          Balance                      $30,000

Delivery Trucks

Date   Accounts Titles            Debit      Credit

c.         Cash                            $2,000

           Note Payable               18,000

d.         Cash                              2,000

           Balance                                       $22,000

2. Classified Balance Sheet as of December 31, 2010:

Assets:

Cash                                    $36,000

Land                     12,000

Delivery trucks   22,000    $34,000

Total assets                        $70,000

Liabilities + Equity:

Notes Payable                     30,000

Common Stock                 $40,000

Total liabilities + Equity     $70,000

Explanation:

a) Trial Balance

Cash                  $36,000

Land                     12,000

Delivery trucks   22,000

Common Stock                $40,000

Notes Payable                    30,000

Totals              $70,000   $70,000

b) Business transactions affect the accounting equation (assets = liabilities + equity) by increasing or decreasing the two sides equally.  This means that the accounting equation is always in balance before and after every transaction.