Reference no: EM132551107
In January of year 1, a company began doing business as a corporation in order to sell technology related accessories and services. During its first month of operations the following events occurred:
January 1 - The Corporation received $1,000,000 in cash in exchanged for stock issued to stockholders.
January 3 - The Corporation borrowed $250,000 from a bank. The loan is a four year loan with an interest rate of 12%, payable each year on January 1 beginning in year 2.
January 5 - The Corporation purchased equipment to be used in the business for $200,000 cash
January 8 - The Corporation purchased inventory costing $200,000 by paying $120,000 in cash. The remainder was put on credit accounts with suppliers.
January 15 - The Corporation hired five employees. Each employee will be paid $1,000 at the end of each month.
January 30 - The Corporation paid $6,000 cash for a one year insurance policy. The policy period will beginning on February 1, year 1.
Question 1: What will be the impact if the January 3 event on the company's balance sheet on the date along with an increase of cash $250,000?
a. Loan payable will increase $370,000
b. Paid in capital will increase $250,000
c. Loan Payable will increase $250,000
d. Loan payable will increase $370,000, and retained earnings will decrease $120,000
Question 2: What will be the impact of the January 31 event on the company's balance sheet on that date?
a. Cash will decrease $5,000 and pain in capital will increase $5,000.
b. Paid in capital will increase $5,000 and accounts receivable will increase $5,000.
c. Retained earnings will decrease $5,000 and cash will decrease $5,000.
d. Salaries payable will increase $5,000 and cash will decrease $5,000.
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