The firm acquires merchandise inventory costing $400 million on account from various suppliers.

QUESTION

Dual effects of transactions on balance sheet equation and journal entries.Assume that during 2008, Inheritance Brands, a U.S. manufacturer and distributor, engaged in the following five transactions. Inheritance Brands applies U.S. GAAP, and reports its results in millions of U.S. dollars.
(1)The firm issues 10 million shares of $3.125 par value common stock for $55 cash per share.
(2)At the end of 2008, the firm acquires land costing $250 million and a building costing $900 million. It pays for the purchase by giving $400 million in cash and promising to pay the remainder in 2009.
(3)The firm pays $30 million cash for a one-year insurance policy on the land and building. The policy period begins at the start of 2009.
(4)The firm acquires merchandise inventory costing $400 million on account from various suppliers.
(5)The firm pays cash to the suppliers in transaction (4)for its purchases on account.
a.Indicate the effects of these five transactions on the balance sheet equation using this format:

Transaction Number

Assets

Liabilities

Shareholders Equity

ANSWER:

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