Question

For the remaining questions, please consider the following transactions that happened upon the incorporation of Berry Company by its owner, John Berry, during the first week of January:
· It received €50,000 in cash from John Berry as capital.

· It borrowed €30,000 from a local bank.

· It purchased €15,000 of equipment for cash.

· It purchased €20,000 of inventory on account.

· It pre-paid €3,000 for the office rent and €2,000 for the insurance.

What is the total current assets at the end of the week?

Answer 1

Answer: €100,000

Explanation:

• Cash received is an asset
• The money borrowed is also cash so assets increase
• Equipment was exchanged for cash. Both of them are assets so there is NO EFFECT on assets here.
• Inventory purchased on account will increase assets because assets were acquired with liabilities in this instance.
• Prepayments are assets but because this was paid with cash, there is NO EFFECT on assets as they cancel each other out.

Total assets at the end of the week are:

= Cash + Cash borrowed + Inventory purchased on account

= 50,000 + 30,000 + 20,000

= €100,000