Question

Accurate Builders construction company was incorporated by John Davis. Assume the following activities occurred during the year: Received from three investors $60,000 cash and land valued at $35,000; each investor was issued 1,000 shares of common stock with a par value of $0.10 per share. Purchased construction equipment for use in the business at a cost of $36,000; one-fourth was paid in cash and the company signed a note for the balance (due in six months). Lent $2,500 to one of the investors, who signed a note due in six months. John Davis purchased a truck for personal use; paid $5,000 down and signed a one-year note for $22,000. Paid $12,000 on the note for the construction equipment in (b) (ignore interest).

Required:
1. For each of the preceding transactions, record the effects of the transaction in the appropriate T-accounts.
2. Using the balances in the T-accounts, fill in the following amounts for the accounting equation:
3. Compute the market value per share of the stock.

Answer 1

1. For each of the preceding transactions, record the effects of the transaction in the appropriate T-accounts.

The truck purchased for personal use is not part of the corporation's assets, therefore it should not be included. The rest of the T accounts are:

Cash Common stock

Debit Credit Debit Credit

60000 300

9000

2500

12000

36500

APIC - Common stock Land

Debit Credit Debit Credit

94700 35000

Equipment Notes payable

Debit Credit Debit Credit

36000 27000

12000

15000

Notes receivable

Debit Credit

2500

2. Using the balances in the T-accounts, fill in the following amounts for the accounting equation:

assets = liabilities + equity

cash $36,500

c.s. $500

a.p.i.c. $94,700

land $35,000

equip. $36,000

notes p. $15,000

notes r. $2,500

assets = liabilities + equity

$110,000 = $15,000 + $95,000

3. Compute the market value per share of the stock.

Since the company doesn't have any revenues yet, we can only calculate the book value of the stocks = equity / total shares outstanding = $95,000 / 3,000 stocks = $31.67