Recording the Effects of Transactions
Maxwell Communications was organized on December 1 of the current year and had the following account balances at December 31, listed in tabular form:
| Assets | = | Liabilities | + | Owners’ Equity | ||||||||
| Cash | + | Office Equipment | + | Building | + | Land | = | Notes Payable | + | Accounts Payable | + | Capital Stock |
Balances | $37,000 |
| $51,250 |
| $125,000 |
| $95,000 |
| $80,000 |
| $28,250 |
| $200,000 |
Early in January, the following transactions were carried out by Maxwell Communications:
1. Sold capital stock to owners for $35,000.
2. Purchased land and a small office building for a total price of $90,000, of which $35,000 was the value of the land and $55,000 was the value of the building. Paid $22,500 in cash and signed a note payable for the remaining $67,500.
3. Bought several computer systems on credit for $9,500 (30-day open account).
4. Obtained a loan from Capital Bank in the amount of $20,000. Signed a note payable.
5. Paid the $22,250 account payable due as of December 31.
Instructions
a. List the December 31 balances of assets, liabilities, and owners’ equity in tabular form as shown.
b. Record the effects of each of the five transactions in the format illustrated in Exhibit 2–11. Show the totals for all columns after each transaction.
EXHIBIT 2–11 Expanded Accounting Equation
OVERNIGHT AUTO SERVICE EXPANDED ACCOUNTING EQUATION JANUARY 20–31, 2015
Assets
=
Liabilities
+
Owners’ Equity
Cash
+
Accounts Receivable
+
Tools and Equipment
+
Building
+
Land
=
Notes Payable
+
Accounts Payable
+
Capital Stock
Retained Earnings
Jan. 20
$80,000
=
$80,000
Balances
$80,000
=
$80,000
Jan. 21
-52,000
+$52,000 x
=
Balances
$28,000
$52,000
$80,000
Jan. 22
-6,000
+$36,000
=
+$30,000
Balances
$22,000
$36,000
$52,000
=
$30,000
$80,000
Jan. 23
+$13,800
=
+$13,800
Balances
$22,000
$13,800
$36,000
$52,000
=
$30,000
$13,800
$80,000
Jan. 24
+$1,800
-1,800
=
Balances
$22,000
$1,800
$12,000
$36,000
$52,000
=
$30,000
$13,800
$80,000
Jan. 26
+600
-600
=
Balances
$22,600
$1,200
$12,000
$36,000
$52,000
=
$30,000
$13,800
$80,000
Jan. 27
-6.800
=
-6,000
Balances
$15,800
$1,200
$12,000
$36,000
$52,000
=
$30,000
$7,000
$80,000
Jan. 31
+2.200
=
+$2,200
Jan. 31
-1,400
=
-1,400 "
Balances
$16,600
$1,200
$12,000
$36,000
$52,000
=
$30,000
$7,000
$80,000
$ 800
Statement of Cash Flows
Income Statement
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