Question

You will need to record each of the following transactions in the basic accounting equation (A=L+E). Make sure to label each account clearly, record the amount of the transaction, and place each transaction in the appropriate blank. This assignment is worth a total of 25 points. 1. You started your company with $100,000 that you raised by selling stock in Practice Makes Perfect Inc. to your family and friends. 2. Knowing that you would need additional funds, you presented your business plan to the bank and were able to get a $50,000 loan at 12%. 3. You purchased three pianos for $16,000 each, paying cash. You believe these pianos will last five years before you replace them. At the end of the five years, you think you can sell each piano for $1,000. 4. You spent $2,000 on supplies (inventory), which you charged on account. 5. The newspaper bills you $500 for the advertisement you ran. You plan on paying the bill next month. 6. Rent for the space you have leased is $1,000 a month, which you paid. 7. The first month you bill students $2,000 for lessons. 8. You pay your two part-time piano teachers $500 each at the end of the month. 9. One of your students paid the $200 invoice you sent earlier in the month. 10. You write the check for the interest owed for the month. 11. You adjust the supplies (inventory) account for $300 of sheet music that you gave to students. 12. You record one month of depreciation on the pianos.

Answer 1

	Accounting Equation
	A		=	L		+	E
Transaction	Total Assets		=	Total Liabilities		+	Total Shareholders' Equity
	Account Title	Amount	=	Account Title	Amount	+	Account Title	Amount
1	Cash	$100,000	=			+	Common Stock	$100,000
2	Cash	$50,000	=	12% Bank Loan Payable	$50,000	+
3	Pianos	$48,000	=			+
	Cash	($48,000)	=			+
4	Supplies	$2,000	=	Accounts Payable	$2,000	+
5			=	Accounts Payable	$500	+	Advertising Expense	($500)
6	Cash	($1,000)	=			+	Rent Expense	($1,000)
7	Accounts Receivable	$2,000	=			+	Service Revenue	$2,000
8	Cash	($1,000)	=			+	Salaries Expense	($1,000)
9	Cash	$200	=	Unearned Service Revenue	$200	+
10	Cash	($500)	=			+	Interest Expense	($500)
11	Supplies	($300)	=			+	Supplies Expense	($300)
12	Accumulated Depreciation	($750)	=			+	Depreciation Expense	($750)
	Total Assets	$150,650	=	Total Liabilities	$52,700	+	Total Shareholders' Equity	$97,950

Working notes:
* 3 = $16,000 * 3 = $48,000
* 8 = $500 * 2 = $1,000
* 10 = $50,000 * 12/100 * 1/12 months = $500
* 12 = ($48,000 - [$1,000 * 3 months]) / 5 years * 1/12 months = $750