Question

QUESTION 5 Record the transaction below Shareholders' Equity Assets Liabilities The following events took place in the first month of business Sold inventory for cash Record both the sale and cost of goods sold. TO RECEIVE CREDIT FOR THE QUESTION, AN ANSWER MUST BE SELECTED FOR EACH COLUMN (ASSETS, LIABILITIES, CONTRIBUTED Co mmon StockRetained Earnings CAPITAL, & RETAINED EARNINGS) EVEN IF THERE IS NO EFFECT. IF THERE IS NO EFFECT, SELECT "O NO EFFECT." -Assets -Liabilities - Common Stock . 4,500 Cash; (4,500) Inventory 5. 4,500 Cash; (1,200) Inventory C. 1,200 Cash 1,200 Sales Revenue; (1,200) Cost of Goods Sold E (1,200) Inventory Expense . (1,200) Cost of Goods Sold G.4,500 Cash Retained Earnings 4,500 Sales Revenue; (1,200) Cost of Goods Sold 1,200 Cash; (1,200) Inventory J. 0 No Effect 4,500 Sales Revenue L. (1,200) Inventory

Answer 1

Answer

• Given transaction is of Sales in Cash.
• When Cash sale happens:

--Sales revenue is increased by amount of Sales = $ 4,500
--Cash is increased by the amount of cash received = $ 4,500
--Cost of Goods Sold (an expense) is increased by the cost of inventory sold = $ 1,200
--Inventory is decreased by the cost of goods sold = $ 1,200

• Answers

--Assets: Option ‘B’= $ 4,500 Cash increase, $ (1,200) Inventory decrease
--Liabilities: Option ‘J’ = $ 0 No effect.
--Common Stock: Option ‘J’ = $ 0 No effect.
--Retained earnings: Option ‘H’ $ 4500 Sales revenue, $ (1,200) Cost of Goods Sold.

	Asset	Liabilities	Common Stock	Retained earnings
Sold inventory for Cash [4500- 1200]	$                   3,300	$                        -	$                        -	$                 3,300