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.
Required:
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.