Question

The following transactions occurred during March 2021 for the Wainwright Corporation. The company owns and operates a wholesale warehouse.

1. Issued 30,000 shares of no-par common stock in exchange for $300,000 in cash.

2. Purchased equipment at a cost of $40,000. $10,000 cash was paid and a note payable to the seller was signed for the balance owed.

3. Purchased inventory on account at a cost of $90,000. The company uses the perpetual inventory system.

4. Credit sales for the month totaled $120,000. The cost of the goods sold was $70,000.

5. Paid $5,000 in rent on the warehouse building for the month of March.

6. Paid $6,000 to an insurance company for fire and liability insurance for a one-year period beginning April 1, 2021.

7. Paid $70,000 on account for the merchandise purchased in 3.

8. Collected $55,000 from customers on account.

9. Recorded depreciation expense of $1,000 for the month on the equipment.

Required:

Analyze each transaction and show the effect of each on the accounting equation for a corporation.

Answer 1

Effect

	Assets	=	Liabilities	+	Stockholder's equity
a	300000				300000
b	40000		30000
	-10000
c	90000		90000
d	120000				120000
	-70000				-70000
e	-5000				-5000
f	6000
	-6000
g	-70000		-70000
h	55000
	-55000
i	-1000				-1000