Question

The Donahoo Western Furnishings Company was formed on December 31, 2014, with $1,000,000 in equity and $500,000 in long-term debt. They began with 1.5 million in cash on the asset side. On January 2, Donahoo purchased $1 million worth of furniture for resale. The company paid $500,000 in cash and refinance the balance with credit that required a payment in 60 days. What did the firm’s balance sheet look like after these transactions. Include all relevant categories (e.g., accounts payable, inventory, retained earnings, etc.)

Answer 1

Answer:

Balance Sheet 2014

Cash                                          $1,000,000

Inventory Furniture                 $1,000,000

TOTAL CURRENT ASSETS    $2,000,000

TOTAL ASSETS                            $2,000,000

Accounts Payable                   $500,000

TOTAL CURRENT LIABILITIES  $500,000

Long Term Liabilities              $500,000

TOTAL LIABILITIES                $1,000,000

Equity                                       $1,000,000

TOTAL EQUITY                      $1,000,000

TOTAL EQUITY + LIABILITIES  $2,000,000

Explanation:

At the beginning the company had cash financed with Capital and Liabilities, $1,500,000.

Then the company purchased Furniture for resale, it increase the inventories and pay this with cash and credit.

The credit was with current liabilities because it was for 60 days and the rest on cash.