Question

Page 38: E1-34B, E1-35B E1-34B. Analyze business transactions using the accounting equation. (LO 4). Enter each trans- action into the accounting equation. Then, calculate the (1) amount of assets owned by Izzy's Ice Cream Shop at the end of its first month of business and (2) the amount of net income for the month. All transactions took place during the first month: Izzy's was open for 25 days. 1. Izzy started the business by contributing $5,500 in exchange for common stock, and the firm borrowed S3,500 from the bank. 2. Izzy's Ice Cream Shop purchased an ice cream delivery truck for $4,500 cash. 3. The business purchased $1,200 worth of ice cream and other items (its inventory) for cash. 4. Izzy hired a delivery driver to work two days a week for a total of eight days the first month to help deliver ice cream for the new company. For this service, Izzy's paid $25 each day worked. 5. The ice cream delivery service was popular and Izzy's sold two-thirds of its inventory for total cash revenues of $3,600 6. Izzy's paid operating expenses of $215 the first month. 7. Izzy's repaid $100 of the bank loan along with $5 of interest for the first month. E1-35B. Classify business transactions. (LO 2). For each of the transactions in E1-34B, tell whether the transaction was an operating, investing, or financing activity O 2017 The Pennsylvania State University, Smeal College of Business

Answer 1

Transaction / Event	Assets			=	Liabilibilities	+	Stockholders' Equity
	Cash	Inventory	Equipment		Notes Payable		Common Stock	Retained Earnings	Revenues	-	Expenses	Net Income	Classification
1.	9,000				3,500		5,500						Financing Activity
2.	(4,500)		4,500										Investing Activity
3.	(1,200)	1,200											Operating Activity
4.	(200)							(200)			200		Operating Activity
5.	3,600	(800)						2,800	3,600		800		Operating Activity
6.	(215)							(215)			215		Operating Activity
7.	(105)				(100)			(5)			5		Financing Activity
Ending Balances	6,380	400	4,500		3,400		5,500	2,380	3,600		1,220	2,380