AP2-14A

(Transaction analysis and financial statement preparation)

Singh Company started business on January 1, 2020. The following transactions occurred in 2020:

• 1.On January 1, the company issued 10,000 common shares for $250,000.
• 2.On January 2, the company borrowed $50,000 from the bank.
• 3.On January 3, the company purchased land and a building for a total of $200,000 cash. The land was recently appraised at a fair market value of $60,000. (Note: Because the building will be depreciated in the future and the land will not, these two assets should be recorded in separate accounts.)
• 4.Inventory costing $130,000 was purchased on account.
• 5.Sales to customers totalled $205,000. Of these, $175,000 were sales on account.
• 6.The cost of the inventory that was sold to customers in transaction 5 was $120,000.
• 7.Payments to suppliers on account totalled $115,000.
• 8.Collections from customers on account totalled $155,000.
• 9.Payments to employees for wages were $55,000. In addition, there was $2,000 of unpaid wages at year end.
• 10.The interest on the bank loan was recognized for the year. The interest rate on the loan was 6%.
• 11.The building was estimated to have a useful life of 30 years and a residual value of $20,000. The company uses the straight-line method of depreciation.
• 12.The company declared dividends of $7,000 on December 15, 2020, to be paid on January 15, 2021.

Required

a. Analyze the effects of each transaction on the basic accounting equation, using a template like the one below:

ASSETS

LIABILITIES

S/H EQUITY

Date/Ref.

Cash

A/R

Inv.

Building

Land

A/P

Wages Payable

Interest Payable

Dividends Payable

Loan Payable

Common Shares

R/E

Rev/Exp/DD

b.

Prepare a statement of income, a statement of changes in equity, a statement of financial position (unclassified), and a statement of cash flows for 2020.