Question

Following the transaction of Dennen, Inc for the month of January

Borrowed $30,000 from a local bank,

Lent 10,000 to affiliate due in 1 year,

Sold to an investor 100 additional share with a .10 per share and a market price of $5 per share and received cash,

Purchased $15,000 on equipment paying $5,000 cash and signing a note for the rest due in 1 year,

Declared and paid $2,000 in dividends to stockholders.

For each of the above transaction of Dennen for the month of January Indicate the accounts, amounts, and direction of the effects (+for increase and -for decrease) on the accounting equation.

Assets                                                Liabilities                           Stockholder Equity     

                                                         

A) Cash                                            Noted payable                                                         

b) Notes receivable                           Cash

c ) cash                                             Common stock

d ) equipment                                    Additional paid in capital

e ) Retained earning                          Cash                

                                                          Notes payable

                                                          Cash

Answer 1

Assuming below available accounts under Assets and Liabilities as trhe question seems a bit unclear.
	Assets	Liabilities
	Cash	Notes Payable
	Notes receivable	Common Stock Additional paid in capital
	Bank	Loan Payable
	Equipment	Stock holder equity
	Retained Earnings

Please refer to the image for solution.
Sr. No. Transaction Increase Account Increase effect Decrease Account Decrease effect Remarks If the loan is payable within a year's time, we will have to increase the Notes Payable account. If the loan is for a period of greater than 1 year, then we will have to account for the Loan amount in the Loan Payable account Since we have taken a loan, our bank balance will increase to that extent Loan Payable/ Notes Payable +$30000 1 Borrowed $30000 from local bank Bank +$30000 Since we are lending, our Notes Receivable will increase (as this amount is receivable in a year's time) and we have an outflow of money, hence our bank account will reduce to that extent 2 Lent $10000 to local affiliate for 1 year Notes Receivable +$10000 Bank $10000 Common Stock Additional paid in capital +$490 Stock holder equity +$10 100*(5-0.1) 100*0.1 Since we have issued additional shares, we have an inflow of money in the bank account. Our Stock holder's equity increases to the extent of the face value of the share (0.1) and balance amount is share premium. Sold to an investor 100 additional share with a .10 per share and a market price of $5 per share and received cash, 3 Bank +$500

Α. B Solution (Contd.) Sr. No. Transaction Increase Account Increase effect Decrease Account Decrease effect Remarks Since there is outflow of cash, we have to reduce the cash balance Cash -$5000 Notes Payable +$10000 Purchased $15,000 on equipment paying $5,000 cash and signing a note for the rest due in 1 year Since we have purchased new fixed asset, our fixed asset balance will increase 4 for the Equipment +$15000 Retained Earnings -$2000 Dividend is paid from Retained earnings Since dividends are declared and paid, money will also have to be reduced as there is actual putflow of money Declared and paid $2,000 in dividends to stockholders 5 Bank -$2000