Question

The following events occurred for Favata Company:_________

Answer 1

Answer:

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    

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).