Question

Recording Transactions with the Accounting Equation During the year, the Decker Company experienced the following accounting transactions: 1. Issued common stock in the amount of $100,000 2. Paid a $30,000 cash dividend 3. Borrowed $25,000 from a bank 4. Made a principal payment of $2,500 on an outstanding bank loan 5. Made an interest payment of $1,200 on an outstanding bank loan Using the accounting equation, record each of the transactions in columnar format using th Use negative signs with answers, when appropriate. Assets = Liabilities + Stockholders' Equity Cash = Notes payable + Common stock + Retained earnings 1 $ 0 = $ 0 + $ 2 $ 0 - $ 0 + $ 3 $ 0 = $ 0 + $ 4 $ 0 = $ 0 + $ 0 + $ 0 = $ O o oooo 0 + $ 5 $ 0 + $

Answer 1

Solution

	Assets	=	Liabilities	+	Stockholder's Equity
	Cash	=	Notes payable	+	Common stock	+	Retained earnings
1	$ 100,000.00	=		+	$ 100,000.00	+
2	$ (30,000.00)	=		+		+	$ (30,000.00)
3	$    25,000.00	=	$     25,000.00	+		+
4	$    (2,500.00)	=	$     (2,500.00)	+		+
5	$    (1,200.00)	=		+		+	$   (1,200.00)

.

Interest paid on loan is an expense that is why the interest expense is deducted from retained earnings.