Question

What is the effect on assets, liabilities and shareholders’ equity of each of the following transactions?

1. Issued $200 000 in shares to new shareholders2. Purchased $30 000 of inventory on credit3. Borrowed $80 000 from the bank4. Paid $20 000 to accounts payable5. Purchased equipment costing $25 000 on credit6. Received $9 000 from a debtor

Prepare journal entries for the above transactions

Answer 1

Journal

Date	Account title	Debit	Credit
1	Cash	200,000
	Common stock		200,000
2	Merchandise inventory	30,000
	Accounts payable		30,000
3	Cash	80,000
	Bank loan		80,000
4	Accounts payable	20,000
	Cash		20,000
5	Equipment	25,000
	Accounts payable		25,000
6	Cash	9,000
	Accounts receivable		9,000

effect on assets, liabilities and shareholders’ equity

1. Assets and shareholders' equity both increase by $200,000

2. Assets and liabilities both increase by $30,000

3. Assets and liabilities both increase by $80,000

4. Assets and liabilities both decrease by $20,000

5. Assets and liabilities both increase by $25,000

6. No effect on assets, liabilities and shareholders' equity.