Question

Cooley Company was started on January 1, 2012, and experienced the following events during its first year of operation.

1. Acquired $31,000 cash from the issue of common stock.
2. Borrowed $39,000 cash from National Bank.
3. Earned cash revenues of $49,000 for performing services.
4. Paid cash expenses of $45,500.
5. Paid a $1,100 cash dividend to the stockholders.
6. Acquired an additional $21,000 cash from the issue of common stock.
7. Paid $10,000 cash to reduce the principal balance of the bank note.
8. Paid $54,000 cash to purchase land.
9. Determined that the market value of the land is $76,000


Record the preceding transactions in the horizontal statements model. Also, in the Cash Flows column, classify the cash flows as operating activities (OA), investing activities (IA), or financing activities (FA) and (NC) for net change in cash. The first event is shown as an example

Answer 1

The question involves categorizing Cooley Company's financial transactions using a horizontal statements model, classifying each transaction as operating, investing, or financing activities in relation to the company's first year of operations.

Step-by-step explanation:

The question relates to the recording of various financial transactions for Cooley Company over its first year using a horizontal statements model. The transactions include issuing common stock, borrowing and repaying a bank loan, earning revenues, paying expenses and dividends, purchasing land, and reassessing the land's market value. These activities are categorized into operating activities (OA), investing activities (IA), and financing activities (FA). The provided references describe banking transactions in the context of a bank balance sheet, the asset quality of a bank loan, and the reserve requirements for banks, which are all foundational concepts in understanding how businesses record and report financial transactions.

For example, when Cooley Company borrowed $39,000 from National Bank (Transaction #2), it would be an increase in cash and an increase in liabilities (notes payable), classified as a financing activity (FA). Paying $45,500 for expenses (Transaction #4) would decrease cash and equity (retained earnings) and would be classified as an operating activity (OA).