Question

Wolverine World Wide, Inc., manufactures military, work, sport, and casual footwear and leather accessories under a variety of brand names, such as Hush Puppies, Wolverine, Merrell, Stride Rite, and Bates, to a global market. The following transactions occurred during a recent year. Dollars are in thousands.

A. Issued common stock to investors for $14,084 cash (example).
B. Purchased $872,418 of additional inventory on account.
C. Borrowed $11,700.
D. Sold $1,346,068 of products to customers on account; cost of the products sold was $750,547.
E. Paid cash dividends of $21,258.
F. Purchased for cash $25,726 in additional property, plant, and equipment.
G. Incurred $345,584 in selling expenses, paying three-fourths in cash and owing the rest on account.
H. Earned $1,772 interest on investments, receiving 90 percent in cash.
I. Incurred $2,990 in interest expense to be paid at the beginning of next year.


Required:

For each of the transactions, complete the tabulation, indicating the effect (positive value for increase, negative value for decrease, and leave blank if no effect) of each transaction. (Remember that A = L + SE, R – E = NI, and NI affects SE through Retained Earnings). The first transaction is provided as an example.("Enter the revenue side and the cost of goods sold side of the transaction on separate lines in the table. Do not net the effects on Stockholders' Equity or Net Income.)

Answer 1

Answer:

A. Issued common stock to investors for $14,084 cash (example).  

• increased ASSETS (cash) and SE by $14,084 (common stock)

B. Purchased $872,418 of additional inventory on account.  

• increased ASSETS (inventory) and LIABILITIES by $872,138 (accounts payable)

C. Borrowed $11,700.  

• increased ASSETS (cash) and LIABILITIES by $11,700 (notes payable)

D. Sold $1,346,068 of products to customers on account; cost of the products sold was $750,547.

• increased REVENUE by $1,346,068 and COGS by $750,547
• increased ASSETS (accounts receivable) by $1,346,068 and decreased inventory by $750,547, net increase of assets is $595,521. Increased EQUITY by increasing retained earnings.

E. Paid cash dividends of $21,258.  

• decreased ASSETS and EQUITY (retained earnings) by $21,258

F. Purchased for cash $25,726 in additional property, plant, and equipment.  

• increased ASSETS (P, P & E) but also decreased ASSETS (cash) by the same amount, so no change at all.

G. Incurred $345,584 in selling expenses, paying three-fourths in cash and owing the rest on account.

• increased COGS by $345,584
• reduces ASSETS (cash) by $259,188, increases LIABILITIES (accounts payable) by $86,396, reduces EQUITY

H. Earned $1,772 interest on investments, receiving 90 percent in cash.

• increases ASSETS by $1,772 (cash $1,594.80 + investments $177.20) and increases EQUITY by $1,772
• increases REVENUE by $1,772

I. Incurred $2,990 in interest expense to be paid at the beginning of next year.

• increases COGS by $2,990
• increases LIABILITIES by $2,990 and reduces EQUITY by $2,990