Question

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Analyzing Transactions and Adjustments Using the Financial Statement Effects Template On March 1, S. Penman launched AniFoods Inc., an organic foods retailing company. Following are the transactions for its first month of business. 1. S. Penman contributed $140,000 cash to the company in return for common stock, Penman also lent the company $77,000. This $77,000 note is due one year hence. 2. The company purchased equipment in the amount of $70,000, paying $14,000 cash and signing a note payable to the equipment manufacturer for the remaining balance 3. The company purchased inventory for $112,000 cash in March. 4. The company had March sales of $140,000, of which $84,000 was for cash and $56,000 on credit. Total cost of goods sold for its March sales was $98,000. 5. The company purchased future advertising time from a local radio station for $14,000 cash. 6. During March, $10,500 worth of radio spots purchased in transaction 5 are aired. The remaining spots will be aired in April. 7. Employee wages earned and paid during March total $23,800 cash. 8. Prior to disclosing the financial statements, the company recognized that employees had earned an additional $1,400 in wages that will be paid in the next period. 9. The company recorded $2,800 of depreciation for March relating to its equipment a. Record the effect of each transaction using the financial statement effects template. Note: For each account category, indicate the appropriate account name. Enter "N/A" for any account category that is not used for a given transaction. Note: Indicate a decrease in an account category by including a negative sign with the amount. Balance Sheet Liabilities Cash Asset Noncash Assets Contrib. Capital Transaction 1 Earned Capital Revenues 2 . 3 e e 4 56,000 P e 5 0 6. . e 7 e 8 P P 9

these are the options for describing

Answer 1

Explanation -

Accounting Equation -

Accounting Equation = Assets = Liabilities + Equity

Every company needs to follow the equation to balance the financial statement if the company miss to follow the accounting equation financial statement will not get match.

Every financial statement contains debit and credit transactions of the transactions and balances.

Every Transaction affect the accounting equation like every transaction has debit effect and credit effect. Hence to match the equation one need to understand the effect of those transaction.

We needs to understand golden rules -

1. Real Account - Debit what comes in and Credit What Goes out

2. Personal Account - Debit the receiver and Credit the Giver.

3. Nominal Account - Debit All Expense and Losses and Credit all income and Gains.

Application of these three principles according to the transaction.

1. Accounting Equation -

Income Statement Transaction Cash Assets + + + Earned Capital Revenue Contributed Capital $ 140,000 Expenses Net Income 1 2 $ 140,000 $ $ $ $ Balance Sheet Non Cash Liabilities Assets $ 77,000 $ 70,000 $ 56,000 $ 70,000 $ 133,000 $ 112,000 $ 182,000 $ 133,000 $ 56,000 $ 238,000 $ 133,000 $ 98,000 $ 140,000 $ 133,000 $ 217,000 $ 14,000 $ 203,000 $ 112,000 $ 91,000 $ 84,000 $ 175,000 3 $ 140,000 $ $ 4.1 $ $ 140,000 $ 140,000 $ 140,000 $ 4.2 $ 140,000 $ $ 140,000 5 $ 175,000 $ (14,000) $ 161,000 $ 133,000 $ 140,000 $ $ 140,000 6 $ 140,000 $ 3,500 $ 143,500 $ $ 140,000 $140,000 $ 98,000 $ 42,000 $ 14,000 $ 28,000 $ 3,500 $ 31,500 $ 23,800 $ 7,700 $ 1,400 $ 6,300 $ 2,800 $ 3,500 $ 133,000 $ 140,000 $ $ 140,000 $ $ 98,000 $ 98,000 $ 14,000 $112,000 $ 3,500 $108,500 $ 23,800 $132,300 $ 1,400 $133,700 $ 2,800 $136,500 $ 161,000 $ 23,800 $ 137,200 7 $ 143,500 $ 140,000 $ $ 140,000 8 $ 133,000 $ 1,400 $ 134,400 $ 137,200 $ 140,000 $ $ 140,000 9 $ 143,500 $ 2,800 $ 140,700 Total $ 137,200 $ 134,400 $ 140,000 $ $ 140,000

2. Income Statement -

AniFoods, Inc. Income Statement For the month Ended March 31 Sales $ 140,000 Cost of Goods Sold $ 98,000 Gross Profit $ 42,000 Advertising Expense $ 10,500 Wages Expense $ 25,200 Depreciation Expense $ 2,800 $ 38,500 Net Income $ 3,500

3. Balance Sheet -

Cash Accounts Receivable Inventory Prepaid Advertising Net PPE AniFoods, Inc. Balance Sheet Mar 31 $137,200 Wages Payable $ 1,400 $ 56,000 Notes Payable (to Owner) $ 77,000 $ 14,000 Notes Payable (to Vendor) $ 56,000 $ 3,500 Total Liabilities $134,400 $ 67,200 Common Stock $140,000 Retained Earnings $ 3,500 Total Assets $ 277,900 Total Liabilities and Equity $277,900