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.