Exercise: Transactions and their effect on the accounting equation (20 points) INSTRUCTIONS: For each transaction, identify...
- Exercise: Transactions and their effect on the accounting equation (20 points)
INSTRUCTIONS: For each transaction, identify the account titles that would be used. Additionally, determine the impact on the accounting equation by writing “Increase (I)”, “Decrease (D), or Both (B). If something is not affected then leave it blank.
EXAMPLE: X Corp. issues $50,000 of common stock for cash.
|
Account Titles |
Amount |
Assets |
Liabilities |
Equity |
|
Cash |
$50,000 |
Increase |
Increase |
|
|
Common Stock |
$50,000 |
Events:
- ABC Company borrows $100,000 from Origin Bank.
- ABC Company is paid $5,000 in advance by Johnny’s Pizza for services to be completed next month.
- ABC Company owes its CEO, Nate Foster, a salary of $50,000 for work completed this month.
- XYZ Inc. bought land for $10,000 in cash.
- At year end, XYZ Inc. had 15,000 shareholders. They paid a dividend of $1.50 per shareholder on December 31.
- ABC Company paid off 25% of the loan from Event 1.
- On 10/31/2019, LMNOP LLC bought a 6 month insurance policy for $3,000. Record the adjustment the company must make for used insurance on 12/31/2019.
- LMNOP LLC purchased supplies of $500 on account.
- At the end of the year, LMNOP LLC counted remaining supplies (from Event 8) worth $25. Record the adjusting entry.
- ABC Company paid its CEO, Nate Foster, the salary that he was owed from Event 3.
|
Event # |
Account Titles |
Amount |
Assets |
Liabilities |
Equity |
|
1 |
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|
2 |
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3 |
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4 |
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5 |
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6 |
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7 |
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8 |
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9 |
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10 |
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Homework Answers
| S.N. | Account Title | Amount | Assets | Liabilities | Equity |
| 1 | Bank | $100000 | Increase | ||
| Loan from Origin Bank | $100000 | Increase | |||
| 2 | Cash/Bank | $5000 | Increase | ||
| Advance received | $5000 | Increase | |||
| 3 | Salary | $50000 | Decrease | ||
| Outstanding Salary | $50000 | Increase | |||
| 4 | Land | $10000 | Increase | ||
| Cash | $10000 | Decrease | |||
| 5 | Retained earning | $22500 | Decrease | ||
| Bank | $22500 | Decrease | |||
| 6 | Loan from Origin Bank | $25000 | Decrease | ||
| Bank | $25000 | Decrease | |||
| 7 | Insurance | $1000 | Decrease | ||
| Prepaid Insurance | $2000 | Increase | |||
| Bank | $3000 | Decrease | |||
| 8 | Purchase | $500 | Decrease | ||
| Creditor | $500 | Increase | |||
| 9 | Closing Stock | $25 | Increase | ||
| Trading A/c | $25 | Increase | |||
| 10 | Outstanding Salary | $50000 | Decrease | ||
| Bank | $50000 | Decrease |
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