Question

The following transactions occurred during a recent year. a. Paid wages of $1,250 for the current period (example) b. Borrowed $6,250 cash from local bank using a short-term note. c. Purchased $2,500 of equipment on credit. d. Earned $500 of sales revenue; collected cash. e. Received $1,000 of utilities services, on credit. f. Earned $2,120 of service revenue, on credit g. Paid $375 cash on account to a supplier h. Incurred $85 of travel expenses: paid cash. 1. Eamed $500 of service revenue; collected half in cash, with balance on credit. j. Collected $130 cash from customers on account. k. Incurred $360 of advertising costs: paid half in cash, with balance on credit Required: 1. For each of the transactions, complete the following table, indicating the account amount, and direction of the effect (+ for increase and - for decrease) of each transaction under the accrual basis. Include revenues and expenses as subcategories of stockholders' equity, as shown for the first transaction, which is provided as an example. 2. Determine the company's preliminary net income.

Answer 1

1]

	Assets	=	Liabilities	+	Stock holder's equity	explanation
a	($1,250)				($1,250)	wages paid will reduce cash and income
b	$6,250		$6,250			note issued is a liability
c	$2,500		$2,500			equipment purchased will increase asset and accounts payable will increase liabilities
d	$500				$500	sales revenue will increase income and cash collected will increase cash
e			$1,000		(1,000)	utilities expense will reduce income
f	$2,120				$2,120	service revenue will increase income and accounts receivable will increase asset
g	($375)		($375)			cash will reduce and accounts payable will decrease
h	($85)				($85)	travel expense will reduce income and cash will decrease
i	$500				$500	Service revenuewill increase and $250 cash will increase $250 accounts receivable increase
j	-					cash collected will increase cash and accounts receivable will reduce so net effect on asset would be zero
k	($130)		$130		($360)	expense will increase . cash will reduce by $360/2 = $130 and accounts payable will increase by $130
Total	$9,930		$9,505		$425

2. net income would be balance of stockholder's equity in above table

=$425

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