Determining the Impact of Transactions, Including Analysis of Cash Flows Vernon Company sells a wide range of goods through two retail stores operated in adjoining cities. Most purchases of goods for resale are on invoices. Occasionally, a short term note payable is used to obtain cash for current use. The following transactions were selected from those occurring during 2012:
a. Purchased merchandise on credit, $18,000 on January 10, 2012; the company uses a periodic inventory system.
b. Borrowed $45,000 cash on March 1, 2012, from City Bank and gave an interest bearing note payable:
face amount, $45,000, due at the end of six months, with an annual interest rate of 10 percent payable at maturity.
1. Describe the impact of each transaction on the balance sheet equation. Indicate the effects (e.g., cash + or ), using the following schedule:
Date Assets Liabilities Stockholders’ Equity
2. What amount of cash is paid on the maturity date of the note?
3. Discuss the impact of each transaction on Vernon’s cash flows.