Question

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Vanishing Games Corporation (VGC) operates a massively multiplayer online game, charging players a monthly subscription of $13. At the start of January 2018, VGC’s income statement accounts had zero balances and its balance sheet account balances were as follows:

Cash	$	2,230,000
Accounts Receivable		211,000
Supplies		16,700
Equipment		928,000
Buildings		425,000
Land		1,630,000
Accounts Payable		134,000
Deferred Revenue		132,000
Notes Payable (due 2025)		123,000
Common Stock		2,900,000
Retained Earnings		2,151,700

In addition to the above accounts, VGC’s chart of accounts includes the following: Service Revenue, Salaries and Wages Expense, Advertising Expense, and Utilities Expense. The following transactions occurred during the January month:

1. Received $71,750 cash from customers on 1/1 for subscriptions that had already been earned in 2017.
2. Purchased 10 new computer servers for $40,800 on 1/2; paid $15,600 cash and signed a three-year note for the remainder owed.
3. Paid $15,100 for an Internet advertisement run on 1/3.
4. On January 4, purchased and received $4,500 of supplies on account.
5. Received $220,000 cash on 1/5 from customers for service revenue earned in January.
6. Paid $4,500 cash to a supplier on January 6.
7. On January 7, sold 13,800 subscriptions at $13 each for services provided during January. Half was collected in cash and half was sold on account.
8. Paid $370,000 in wages to employees on 1/30 for work done in January.
9. On January 31, received an electric and gas utility bill for $5,750 for January utility services. The bill will be paid in February.

Required:

1. Analyze the effect of the January transactions on the accounting equation, and indicate the account, amount, and direction of the effect of each transaction. (Enter any decreases to account balances with a minus sign.)

Assets Liabilities Stockholders' Equity

Answer 1

Shareholders Equity Assets Liabilities S.No Amount $ Direction Direction Account Amount $ Direction Account Account Amount $ Cash 71,750 + a No Change No Change 71,750 Accounts receivable Computers 40,800 No Change Accounts Payable Cash 25,200 15,600 Advertisment expense Cash 15,100 15,100 No change Accounts Payable Supplies 4,500 + 4,500 Cash 220,000 No Change No Change Accounts receivable 220,000 Cash Accounts Payable 4,500 4,500 Cash 89,700 Accounts receivable Service revenue 220,000 309,700 Cash Wages expense 370,000 370,000 Utilities Payable Utilities expense 5,750 5,750