Question

Cornerstone Exercise 2-22 (Algorithmic) Transaction Analysis The Mendholm Company entered into the following transactions: a. Performed services on account, $13,800. b. Collected $7,300 from client related to services performed in Item a. C. Paid $1,500 dividend to stockholders. d. Pald salaries of $3,500 for the current month. Required: Show the effect of each transaction using the following model. If an amount box does not require an entry, leave the cells blank. Enter decreases in account values as negative numbers. If the effect of a transaction is to increase AND decrease the same item (.e. Asset, Liability), enter "0" since the net effect on the item is zero. Assets = Liabilities + Stockholders' Equity Contributed Capital Retained Earnings 13,800 13,800 7,300

Answer 1

+ Answer to Q#2-22 (First question in the list (Mendholm Company)): Stockholders' Equity Contributed + Retained No. Assets Liabilities Capital Earnings $13,800 $13,800 b. $0 $0 $1,500 - $1,500 $3,500 - $3,500 + + + + reuo + + + + Explanation: For Transaction-(a), Accounts Receivable is created and so Asset is increased by $13,800; On the other hand, Revenue is generated and so Retained Earnings is increased by $13,800. For Transaction-(b), Accounts Receivable is settled off and so Asset is decreased by $7,300; On the other hand, Cash is collected and so Asset is increased by $7,300. As a result, Asset is neither increased nor decreased by this transaction. As one increase in Asset is set off by one decrease in Asset itself, balance in none of the categories is changed by this transaction. For Transaction-(c), Cash is paid and so Asset is decreased by $1,500; On the other hand, Firm's retained earnings is distributed and so Retained Earnings is decreased by $1,500. For Transaction-(d), Cash is paid and so Asset is decreased by $3,500; On the other hand, Salary (an expense) is recorded and so Retained Earnings is decreased by $3,500.