Question

Brown Co. was formed when it acquired cash from the issue of common stock. The company then issued bonds at a discount on January 1, 2013. Interest is payable on December 31 with the first payment made December 31, 2013. On January 2, 2013, Brown Co. purchased a piece of land that produced rent revenue annually. The rent is collected on December 31 of each year, beginning December 31, 2013. At the end of the six-year period (January 1, 2019), the land was sold at a gain, and the bonds were paid off at face value. A summary of the transactions for each year follows:
2013
1. Acquired cash from the issue of common stock.
2. Issued six-year bonds.
3. Purchased land.
4. Received land rental income.
5. Recognized interest expense, including the amortization of the discount, and made the cash payment for interest on December 31.
6. Prepared December 31 entry to close Rent Revenue.
7. Prepared December 31 entry to close Interest Expense.
2014–2018
8. Received land rental income.
9. Recognized interest expense, including the amortization of the discount, and made the cash payment for interest December 31.
10. Prepared December 31 entry to close Rent Revenue.
11. Prepared December 31 entry to close Interest Expense.
2019
12. Sold the land at a gain.
13. Retired the bonds at face value.

Required
Identify each of these 13 events and transactions as asset source (AS), asset use (AU), asset exchange (AE), or claims exchange (CE). Explain how each event affects assets, liabilities, equity, net income, and cash flow by placing a + for increase, – for decrease, or NA for not affected under each of the categories. In the Cash Flow column, indicate whether the item is an operating activity (OA), investing activity (IA), or financing activity (FA).


Brown Co.


Event No.
Type of Event


Assets

=

Liabilities

+
Common Stock

+
Retained Earnings

Net Income


Cash Flow



1.
AS

+

NA

+

NA

NA

+ FA



2.
AS

+

+

NA

NA

NA

+ FA



3.
AE

+(

NA

NA

NA

NA

( IA



4.
AS

+

NA

NA

+

+

+ OA



5.
AU/CE

(

+

NA

(

(

( OA



6.
Closing

NA

NA

NA

NA

NA

NA



7.
Closing

NA

NA

NA

NA

NA

NA



8.
AS

+

NA

NA

+

+

+ OA



9.
AU/CE

(

+

NA

(

(

( OA



10.
Closing

NA

NA

NA

NA

NA

NA



11.
Closing

NA

NA

NA

NA

NA

NA



12.
AS/AE

+

NA

NA

+

+

+ IA



13.
AU

(

(

NA

NA

NA

( FA



















The first event is recorded as anexample.


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  • CreatedOctober 26, 2013
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