Question

The accounting records of Nettle Distribution show the following assets and liabilities as of December 31, 2014 and 2015. December 3120142015 Cash$ 64,300$ 15,640 Accounts receivable26,240 19,390 Office supplies3,160 1,960 Office equipment44,000 44,000 Trucks148,000 157,000 Building0 80,000 Land0 60,000 Accounts payable3,500 33,500 Note payable0 40,000 Late in December 2015, the business purchased a small office building and land for $140,000. It paid $100,000 cash toward the purchase and a $40,000 note payable was signed for the balance. Mr. Nettle had to invest $35,000 cash in the business to enable it to pay the $100,000 cash. Mr. Nettle withdraws $3,000 cash per month for personal use.Required:1.Prepare balance sheets for the business as of December 31, 2014 and 2015. (Hint: Report only total equity on the balance sheet and remember that total equity equals the difference between assets and liabilities.)NETTLE DISTRIBUTIONBalance SheetDecember 31, 2014AssetsLiabilitiesCash$64,300Accounts payable$3,500Accounts receivable26,240Office equipment44,000Trucks148,000EquityTotal equity282,200Total assets$282,540Total liabilities and equity$285,700NETTLE DISTRIBUTIONBalance SheetDecember 31, 2015AssetsLiabilitiesCash$15,640Accounts payable$33,500Accounts receivable19,390Note payable40,000Office supplies1,960Office equipment44,000Trucks157,000Total liabilities73,500Building80,000EquityLand60,000Total equity304,490Total assets$377,990Total liabilities and equity$377,990Please show how you calculate this so I can have a clear understanding of how to arrive at the answers.Equity, December 31, 2014Add: Owner's investment35,000Add: Net income35,000Less: Owner WithdrawalsEquity, December 31, 2015$35,000

Answer 1

Answer:

2014         2015        Balance Sheet

$134,300 $50,640  Cash

$26,240  $19,390   Accounts Receivable

$3,160      $1,960      Office Supplies

$163,700 $71,990     TOTAL CURRENT ASSETS  

$ 44,000 $ 44,000 Office Equipment

$ 148,000 $ 157,000 Trucks

$ 0,000    $ 60,000 Land

$ 0,000   $ 80,000 Buildings

$192,000 $341,000  TOTAL NON CURRENT ASSETS  

$355,700 $412,990  TOTAL ASSETS  

$3,500     $33,500    Accounts Payable  

$0,000     $40,000   Note Payable  

$3,500     $73,500     TOTAL CURRENT LIABILITIES  

$0,000     $0,000      TOTAL NON CURRENT LIABILITIES  

$3,500    $73,500   TOTAL LIABILITIES

$282,200 $304,490  Equity  

$35,000  $35,000   Retained Earnings  

$35,000  $0,000      Owner Investment  

$352,200 $339,490  TOTAL EQUITY  

$355,700 $412,990  TOTAL EQUITY + LIABILITIES  

Explanation:

• Equity, December 31, 2014Add: Owner's investment35,000Add: Net income35,000

When the investor add capital to the company it increases the cash account because it put money into the company and as counter account you have to increase equity to keep the accounting equation.

In the case that you keep in the company the Net Income, in this case the investor has the right of taking the money as dividend and retire the money of the company, but if the investor leave the money at the company by the Net Income it means that the company increase its retained earnings accounts with the counter account of cash as asset.

• Owner WithdrawalsEquity, December 31, 2015$35,000

Here it's the opposite situation as before, and here the investor withdraw the money from the company, it means him get the cash and decrease the equity.