A. J. Smith Company started business on January 1, 2016, and the following transactions occurred in its first year:

1. On January 1, the company issued 12,000 common shares at $25 per share.

2. On January 1, the company purchased land and a building from another company in exchange for $80,000 cash and 6,000 shares. The land€™s value is approximately one quarter of the total value of the transaction.

3. On March 31, the company rented out a portion of its building to Frantek Company. Frantek is required to make quarterly payments of $7,500 on March 31, June 30, September 30, and December 31 of each year.

The first payment, covering the period from April 1 to June 30, was received on March 31, and the other payments were all received as scheduled.

4. Equipment worth $120,000 was purchased on July 1, in exchange for $60,000 cash and a one-year note with a principal amount of $60,000 and an interest rate of 10%. No principal or interest payments were made during the year.

5. Inventory costing $250,000 was purchased on account.

6. Sales were $300,000, of which credit sales were $250,000.

7. The inventory sold had a cost of $190,000.

8. Payments to suppliers totalled $205,000.

9. Accounts receivable totalling $200,000 were collected.

10. Operating expenses amounted to $50,000, all of which were paid in cash.

11. The building purchased in transaction 2 is depreciated using the straight-line method, with an estimated useful life of 20 years and an estimated residual value of $30,000.

12. The equipment purchased in transaction 4 is depreciated using the straight-line method, with an estimated useful life of 10 years and an estimated residual value of $5,000. Because the equipment was purchased on

July 1, only a half year of depreciation is recognized in 2016.

13. Dividends of $20,000 were declared during the year, of which $5,000 remained unpaid at year end.

14. Interest expense on the note payable from transaction 4 was recorded.

Required:

a. Show the effects of the transactions on the basic accounting equation, by preparing a table like the one in Exhibit 2-3.

Exhibit 2-3

b. Prepare a statement of income, statement of changes in equity, statement of financial position (unclassified), and statement of cash flows for 2016.
c. Comment on the company€™s results for its first year of operations.

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ASSETS LIABILITIES-+ S/H EQUITY Bank Interest LoanCommon Retained R/E A/P Payable Payable Shares Earnings DD Prepaid Date Cash A/R Inv. Ins. Equip. Land Jan. 1 250,000 Jan. 1 100,000 Jan. 1(1,100) Jan. 1 (65,000) Jan. 1(1,800) Jan. 6 (180,000) 250,000 100,000 (1,100) E 65,000 1,800 180,000 Jan. 10 23,000 23,000 Jan. 12: 1 21,000 13,000 Jan. 12:2 34,000 R (17000) E (17,000) Jan. 20 11,000 (11,000) Jan 22 (13,500 Jan. 25 (1,900) Jan. 26(2,200) Jan. 28 (2,900) Jan. 31 (400) (13,500) (1,900E (2,200 E (2,900 E (400) DD (850) E (150) E (500)E (850) Jan. 31 Jan. 31 Jan. 31 (150) 500 113,200 2,000 6,000 1,650 64,150 180,000 367,000 9,500500 100,000 250,000 7,000 367,000