Posted by **Julie** on Saturday, December 12, 2009 at 1:05pm.

I have worked and worked on this problem and came up with 2 different answers for b. and now am unsure of my answer for a.

Problem 2:

For each journal entry, prepare an explanation of the business event that is being

represented:

a. Loan payable $57,000

Cash $11,400 Inventory $45,600

b. Accounts payable $13,450

Cash $13,450

a. The company borrowed $57,000 from a bank. $45,600 of this was used to purchase inventory. An increase in cash Assets and an increase in Liabilities is the result.

b. The company purchased $13,450 worth of inventory on credit (will pay later). The inventory is resold at a later date. This causes an increase in Assets and in Liabilities.

b. Paid $13,450 for items previously purchased on account. This causes a decrease in Assets and in Liabilities and no change to Equity. (From Chapter 3, p. 94)

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