Question

Ray Steen recently started a business. During the first few days of operation, Mr. Steen transferred $100,000 from his personal account into a business account for a company he named Steen Enterprises. Steen Enterprises borrowed $60,000 from First Bank. Mr. Steen's father-in- law, Stan Rhoades, invested $75,000 into the business for which he received a 25 percent owner- ship interest. Steen Enterprises purchased a building from Zoro Realty Company. The building cost $150,000 cash. Steen Enterprises earned $56,000 in revenue from the company's customers and paid its employees $31,000 for salaries expense. Required Identify the entities that were mentioned in the scenario and explain what happened to the cash accounts of each entity that you identify. g

Answer 1

Answer:

1. Identification of mentioned entities:

a. Ray Steen and Steen Enterprises

b. Steen Enterprises and Ray Steen

c. First Bank and Steen Enterprises

d. Stan Rhoades and Steen Enterprises

e. Zoro Realty Company and Steen Enterprises

f. Steen Enterprises, Customers, and Employees

2. Effects on Entities' Cash Accounts:

a. Ray Steen's personal Cash Account decreased and Steen Enterprises' increased by $100,000

b. Steen Enterprises' Cash Account increased as above.

c. First Bank's Cash Account decreased and Steen Enterprises' increased by $60,000 respectively.

d. Stan Rhoades' Cash Account decreased and Steen Enterprises' increased by $75,000

e. Zoro Realty Company's Cash Account increased while Steen Enterprises' decreased by $150,000.

f. Steen Enterprises, Customers, and Employees:  Cash Account of Steen Enterprises increased and Customers' decreased by $56,000 respectively.  Also the cash account of Steen Enterprises decreased and Employees' cash accounts increased by $31,000 respectively.

Explanation:

A legal entity is a person (like Ray Steen, Stan Rhoades, Employees, and Customers, etc), department, team, corporation (First Bank, Zoro Realty Company, and Steen Enterprises), cooperative, partnership, or other groups with whom it is possible to conduct business where economic resources are exchanged between economic agents (entities) undertaking economic events.  This shows that in every business transaction, three important things are involved.  They are resources, events, and agents.  The resources describe the monetary value of assets (economic resources) that are exchanged between the agents.  The events are the transactions while the agents are the entities (different personalities) that are involved in the exchange.  This is fully developed in the REA model of accounting system.