Question

The following events occurred for Favata Company:_________

a. Received $16,500 cash from owners and issued stock to them.
b. Borrowed $13,500 cash from a bank and signed a note due later this year.
c. Bought and received $1,450 of equipment on account.
d. Purchased land for $25,000; paid $2,300 in cash and signed a long-term note for $22,700.
e. Purchased $9,500 of equipment, paid $2,300 in cash and charged the rest on account.
Required:
For each of the events in above, prepare journal entries. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

Answer 1

a.

Cash 16500 Dr

Common Stock 16500 Cr

b.

Cash 13500 Dr

Notes Payable 13500 Cr

c.

Equipment account 1450 Dr

Accounts Payable 1450 Cr

d.

Land 25000 Dr

Cash 2300 Cr

Notes Payable 22700 Cr

e.

Equipment account 9500 Dr

Cash 2300 Cr

Accounts Payable 7200 Cr

Step-by-step explanation:

a.

The issuance of common stock against cash will increase the cash and the capital. So cash will be debited and capital (common stock) will be credited.

b.

The issuance of notes payable against cash increases liability and asset. The asset increase in cash will be debited and liability increase in notes payable will be credited.

c.

The purchase of equipment on account will increase liability and asset. The asset increase in form of equipment will be debited and the liability increase in form of accounts payable will be credited.

d.

The purchase of land will increase land and result in a debit to the land account. It is purchased for cash and a liability of notes payable. So both cash and the notes payable account will be credited as cash decreases (asset decrease in credited) and liability increases (liability increase is credited).

e.

The purchase of equipment will increase equipment account and result in a debit to the equipment account. It is purchased for cash and a liability of accounts payable. So both cash and the accounts payable account will be credited as cash decreases (asset decrease in credited) and liability increases (liability increase is credited).