August 31 2009 Solutions

August 31 2009 Solutions - SI Session Monday, August 31,...

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SI Session Monday, August 31, 2009 1. Jenkins Widgets Company recorded $1.2 million of assets as at January 1, 2009. a.) If they also recorded $700,000 in liabilities, how much should they have in total for stockholder’s equity? Assets = Liabilities + Stockholder’s Equity 1,200,000 = 700,000 + 500,000 b.) If the company spends $15,000 cash on new equipment, how will this equation from part (a) be affected? No effect. One asset is traded for another, so the total amount for each account will not change. Note though that the cash account and equipment accounts will change as a result. c.) What if a loan of $15,000 was taken out to pay for the new equipment? Both assets and liabilities will increase by $15,000. Stockholder’s Equity is not affected. d.) Why does this equation hold always hold true for all companies? All assets must come from investment in the company. These investments are either direct investment from owners (Capital Stock), retained earnings from income, and short term and long term loans (Liabilities). 2.
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August 31 2009 Solutions - SI Session Monday, August 31,...

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