Julio Estella formed Estella Consulting to provide accounting and financial consulting services to clients. The following activities occurred during the year:

(a) Received $60,000 cash from Julio Estella to establish the sole proprietorship.

(b) Purchased equipment for use in the business at a cost of $12,000; one-fourth was paid in cash and the company signed a note for the balance (due in six months).

(c) Signed an agreement with a cleaning service to pay it $120 per week for cleaning the corporate offices, beginning next week.

(d) Julio Estella borrowed $10,000 for personal use from a local bank, signing a one-year note.

Required:

1. Create T-accounts for the following accounts: Cash, Equipment, Notes Payable, and Julio Estella, Capital. Beginning balances are zero. For each of the preceding transactions, record its effects in the appropriate T-accounts. Include good referencing and totals for each T-account.

2. Using the balances in the T-accounts, fill in the following amounts for the accounting equation:

Assets $ ---- = Liabilities $ ---- + Owner's Equity $ ----

3. Explain your response to events (c ) and (d).