Question

Silver Company provided consulting services and billed the client $2,500. As a result of this event, a. assets remained unchanged. b. assets increased by $2,500. C. assets and stockholders' equity both increased by $2,500. C. stockholders' equity increased by $2,500.

Answer 1

Answer: (c) assets and stockholders equity both increased by $2500.

Analysis:-

As per the accounting equation (or fundamental accounting equation), the sum of the total asset is equal to the sum total stockholders' equity and the total liability.

i.e., Assets= Liabilities+Stockholders equity.

Stockholders equity includes common stock + Retained earnings.

Silver Company provided consulting services and billed the client $2500.as a result of such event and the following entry is passed:

Accounts Receivable a/c ......Dr $2500

To service Revenue a/c $2500

(Assuming ,it is a service on account (credit) )

1.Here account receivable is a asset ,hence asset increases by $2500.

2. And service revenue is a revenue item , which increases net income, finally that Net income is added to "Retained earnings" in the stockholders equity.,hence stockholder equity increases by $2500.

So, Assets =liabilities+ stockholders equity

2500= 0+2500

2500=2500

Note: In case it is cash service , just replace "account receivable" with "cash" in the journal entry.

Hope this helps you, Ask for any doubt, Thank you!?