Question

Tiva Solutions’ accounting records reflect the following account balances as at December 31, 2016:
Building R560,000
Accumulated Deprec.--Bldg R112,000
Cash 90,000
Capital Stock 343,000
Supplies 5,000

Retained Earnings 200,000

During 2016, the following transactions occurred:
1)
On March 1, purchased a one-year insurance policy for R1,200 cash.
2)
On April 1, borrowed R10,000 cash from Rock City Bank. The interest rate on the note payable is 6%.
Principal and interest are due in cash in one year.
3)
Employee salaries in the amount of R20,000 were paid in cash.
4)
At the end of the year, R400 of the supplies remained on hand.
5)
Earned R45,000 in tax consulting revenue during 2016 in cash.
6)
At December 31, R5,000 in employee salaries were accrued.
7)
On December 31, received R2,000 in cash representing advance payment for services to be provided in February of 2017.
8)
The building has a useful life of 25 years and no salvage value.

Determine the effect on the accounting equation of the preceding transactions including any related year-end adjusting entries that may be required. Create a table to reflect the increases and decreases in accounts.

Balance Sheet

Assets
=
Liabilities
+
Stockholders’
Equity

Income Statement
Revenues
–
Expenses
=
Net Income

Answer 1

Balancesheet table
Sl. No,	Particulars	Assets	Liabilities	Stockholders’ Equity	Income statement
Revenues	Expenses	Net Income
	Opening Trial balance as on Dec 31, 2016	543000		543000			0
	Assets =(building- accumulated dep+cash+supplies)						0
	Stockholders equity=(capital stock +retained earnings)						0
1	Purchase of insurance policy						0
	Insurance expense for 10 months (1200*10/12) while balance 200 will be a prepaid expense whose effect on Assets will be nil	-1000				1000	-1000
2	On April 1, borrowed R10,000 cash from Rock City Bank.						0
	Entry for borrowings	10000	10000				0
	Interest payable for 9 months (10000*6%*9/12)		450			450	-450
3	Employee salaries in the amount of R20,000 were paid in cash	-20000				20000	-20000
4	At the end of the year, R400 of the supplies remained on hand.						0
	Supplies consumed (opening supplies- closing supplies)	-4600				4600	-4600
5	Earned R45,000 in tax consulting revenue during 2016 in cash.	45000			45000		45000
6	At December 31, R5,000 in employee salaries were accrued.		5000			5000	-5000
7	On December 31, received R2,000 in cash representing advance payment for services to be provided in February of 2017.	2000	2000				0
8	The building has a useful life of 25 years and no salvage value.						0
	Depreciation -560000/25	-22400				22400	-22400
	Total	552000	17450	543000	45000	53450	-8450
	Assets = liabilities + equity
	552000=17450+543000-8450