Concept explainers
(a)
Accounting equation represents the relationship between assets, liabilities and shareholders’ equity. It is the foundation of double entry system and it helps to analyze the business transaction. Accounting equation displays the total assets are equal to the total liabilities and shareholders’ equities. Thus, the accounting equation is,
Net income:
Net income is the excess amount of revenueleft after deducting all the expenses of a company. Simply, it is the difference between the total revenue, and the total expenses of the company.
To show: The effect of each transaction on the accounting equation, and explanation for changes to retained earnings.
(b)
To compute: the net income of WTA Incorporation for the month of April.
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Financial Accounting: Tools for Business Decision Making, 8th Edition
- Prepare journal entries to record the following transactions for the month of November: A. on first day of the month, issued common stock for cash, $20,000 B. on third day of month, purchased equipment for cash, $10,500 C. on tenth day of month, received cash for accounting services, $14,250 D. on fifteenth day of month, paid miscellaneous expenses, $3,200 E. on last day of month, paid employee salaries, $8,600arrow_forwardInner Resources Company started its business on April 1, 2019. The following transactions occurred during the month of April. Prepare the journal entries in the journal on Page 1. A. The owners invested $8,500 from their personal account to the business account. B. Paid rent $650 with check #101. C. Initiated a petty cash fund $550 check #102. D. Received $750 cash for services rendered. E. Purchased office supplies for $180 with check #103. F. Purchased computer equipment $8,500, paid $1,600 with check #104 and will pay the remainder in 30 days. G. Received $1,200 cash for services rendered. H. Paid wages $560, check #105. I. Petty cash reimbursement office supplies $200, Maintenance Expense $140, Miscellaneous Expense $65. Cash on Hand $93. Check #106. J. Increased Petty Cash by $100, check #107.arrow_forwardIn July of this year, M. Wallace established a business called Wallace Realty. The account headings are presented below. Transactions completed during the month follow. a. Wallace deposited 24,000 in a bank account in the name of the business. b. Paid the office rent for the current month, 650, Ck. No. 1000. c. Bought office supplies for cash, 375, Ck. No. 1001. d. Bought office equipment on account from Dellos Computers, 6,300. e. Received a bill from the City Crier for advertising, 455. f. Sold services for cash, 3,944. g. Paid on account to Dellos Computers, 1,500, Ck. No. 1002. h. Received and paid the bill for utilities, 340, Ck. No. 1003. i. Paid on account to the City Crier, 455, Ck. No. 1004. j. Paid truck expenses, 435, Ck. No. 1005. k. Wallace withdrew cash for personal use, 1,500, Ck. No. 1006. Required 1. Record the transactions and the balance after each transaction. 2. Total the left side of the accounting equation (left side of the equal sign), then total the right side of the accounting equation (right side of the equal sign). If the two totals are not equal, check the addition and subtraction. If you still cannot find the error, re-analyze each transaction.arrow_forward
- Analyzing the Accounts The controller for Summit Sales Inc. provides the following information on transactions that occurred during the year: a. Purchased supplies on credit, $18,600 b. Paid $14,800 cash toward the purchase in Transaction a c. Provided services to customers on credit1 $46,925 d. Collected $39,650 cash from accounts receivable e. Recorded depreciation expense, $8,175 f. Employee salaries accrued, $15,650 g. Paid $15,650 cash to employees for salaries earned h. Accrued interest expense on long-term debt, $1,950 i. Paid a total of $25,000 on long-term debt, which includes $1.950 interest from Transaction h j. Paid $2,220 cash for l years insurance coverage in advance k. Recognized insurance expense, $1,340, that was paid in a previous period l. Sold equipment with a book value of $7,500 for $7,500 cash m. Declared cash dividend, $12,000 n. Paid cash dividend declared in Transaction m o. Purchased new equipment for $28,300 cash. p. Issued common stock for $60,000 cash q. Used $10,700 of supplies to produce revenues Summit Sales uses the indirect method to prepare its statement of cash flows. Required: 1. Construct a table similar to the one shown at the top of the next page. Analyze each transaction and indicate its effect on the fundamental accounting equation. If the transaction increases a financial statement element, write the amount of the increase preceded by a plus sign (+) in the appropriate column. If the transaction decreases a financial statement element, write the amount of the decrease preceded by a minus sign (-) in the appropriate column. 2. Indicate whether each transaction results in a cash inflow or a cash outflow in the Effect on Cash Flows column. If the transaction has no effect on cash flow, then indicate this by placing none in the Effect on Cash Flows column. 3. For each transaction that affected cash flows, indicate whether the cash flow would be classified as a cash flow from operating activities, cash flow from investing activities, or cash flow from financing activities. If there is no effect on cash flows, indicate this as a non-cash activity.arrow_forwardOn April 1, Splish Brothers Inc. began operations. The following transactions were completed during the month. 1. Stockholders invested $21,100 in the business in exchange for common stock. Obtained a bank loan for $6,200 by issuing a note payable. Paid $9,700 cash to buy equipment. Paid $1,100 cash for April office rent. Paid $1,300 for supplies. Purchased $530 of advertising in the Daily Herald, on account. Performed services for $15,800: cash of $1,760 was received from customers, and the balance of $14,040 was billed to customers on account. Paid $350 cash dividend to stockholders. Paid the utility bill for the month, $1,760. Paid Daily Herald the amount due in transaction (6). Paid $40 of interest on the bank loan obtained in transaction (2). Paid employees' salaries and wages, $5,630. Received $10,560 cash from customers billed in transaction (7). 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. Journalize the transactions. (Credit account titles are automatically indented when amount is…arrow_forwardThe following are the transactions of Spotlighter, Incorporated, for the month of January. a. Borrowed $3.990 from a local bank on a note due in six months. b. Received $4,680 cash from investors and issued common stock to them. C. Purchased $1,100 in equipment, paying $250 cash and promising the rest on a note due in one year. d. Paid $350 cash for supplies. e. Bought and received $750 of supplies on account. Required: Post the effects to the appropriate T-accounts and determine ending account balances. Show a beginning balance of zero.arrow_forward
- Sentry, Inc. was started on January 1, Year 1.Year 1 Transactions Acquired $20,000 cash by issuing common stock. Earned $62,000 of revenue on account. On October 1, Year 1, borrowed $12,000 cash from the local bank. Incurred $3,700 of operating expenses on account. Collected $5,000 cash from accounts receivable. Paid $2,900 cash to pay off a portion of the accounts payable. On December 31, Year 1, Sentry recognized accrued interest expense. The note had a one-year term and an 8 percent annual interest rate. Year 2 Transactions Collected cash for the remaining balance in accounts receivable. Paid cash to settle the remaining balance of accounts payable. On September 30, Year 2, recognized accrued interest expense. On September 30, Year 2, paid cash to settle the balance of the interest payable account. On September 30, Year 2, paid cash to settle the notes payable. Requireda. Record the events for Year 1 and Year 2 in an accounting equation. At the end of Year 1, total the columns…arrow_forwardThe following are the transactions of Spotlighter, Incorporated, for the month of January. a. Borrowed $4,390 from a local bank on a note due in six months. b. Received $5,080 cash from investors and issued common stock to them. c. Purchased $1,900 in equipment, paying $650 cash and promising the rest on a note due in one year. d. Paid $750 cash for supplies. e. Bought and received $1,150 of supplies on account. Required: Post the effects to the appropriate T-accounts and determine ending account balances. Show a beginni Debit Beginning Balance Ending Balance Debit F Cash Equipment Credit Credit Debit Beginning Balance Ending Balance Debit Supplies Accounts Payablearrow_forwardOn April 1, Larkspur, Inc. began operations. The following transactions were completed during the month. 1. Stockholders invested $23,500 in the business in exchange for common stock. Obtained a bank loan for $6,900 by issuing a note payable. Paid $10,800 cash to buy equipment. Paid $1,200 cash for April office rent. Paid $1,400 for supplies. Purchased $590 of advertising in the Daily Herald, on account. Performed services for $17,600: cash of $1,960 was received from customers, and the balance of $15,640 was billed to customers on account. Paid $390 cash dividend to stockholders. Paid the utility bill for the month, $1,960. Paid Daily Herald the amount due in transaction (6). Paid $40 of interest on the bank loan obtained in transaction (2). 2. 3. 5. 6. 7. 8. 9. 10. 11. 12. 13. Paid employees' salaries and wages, $6,270. Received $11,760 cash from customers billed in transaction (7). Journalize the transactions. (Credit account titles are automatically indented when amount is entered.…arrow_forward
- The transactions relating to the formation of Blue Co. Stores Inc., and its first month of operations follow. a. The firm was organized and the stockholders invested cash of $8,200. b. The firm borrowed $5,000 from the bank; a short-term note was signed. c. Display cases and other store equipment costing $1,750 were purchased for cash. The original list price of the equipment was $1,970, but a discount was received because the seller was having a sale. d. A store location was rented, and $1,350 was paid for the first month's rent. e. Inventory of $15,800 was purchased; $9,900 cash was paid to the suppliers, and the balance will be paid within 60 days. f. During the first week of operations, merchandise that had cost $4,500 was sold for $5,900 cash. g. A newspaper ad costing $130 was arranged for; it ran during the second week of the store's operations. The ad will be paid for in the next month. h. Additional inventory costing $4,300 was purchased; cash of $1,200 was paid, and the…arrow_forwardOn June 1, Maui Travel Agency, Inc., was established. The following transactions were com- pleted during the month. Stockholders invested $40,000 cash, receiving common stock in exchange. Paid $1,000 cash for June office rent. Purchased office equipment for $5,000 cash. Paid $1,000 cash for office supplies. Incurred $500 of advertising costs in the Daily Maui, on account. Earned $25,000 for services rendered: Cash of $12,000 is received from customers, and the balance of $13,000 is billed to customers on account. Paid $750 cash dividend. Paid Daily Maui amount due in transaction (4). Paid employees’ salaries $2,500. Determine effect of transac- tions on basic accounting equation.(SO 8) Analyze the effect of transactions.(SO 8) 10. Cash of $10,000 is received from customers who have previously been billed in transaction (6). a) Prepare a tabular analysis of the transactions using the following column headings: Cash, Accounts Receivable, Supplies, Office…arrow_forwardOn April 1, Sage Hill Inc. was established. These transactions were completed during the month. 1. Stockholders invested $30,600 cash in the company in exchange for common stock. 2. Paid $870 cash for April office rent. 3. Purchased office equipment for $2,980 cash. 4. Purchased $140 of advertising in the Chicago Tribune, on account. 5. Paid $350 cash for office supplies. 6. Performed services worth $12,700. Cash of $3,400 is received from customers, and the balance of $9,300 is billed to customers on account. 7. Paid $400 cash dividends. 8. Paid Chicago Tribune amount due in transaction (4). 9. Paid employees’ salaries $1,380. 10. Received $9,300 in cash from customers billed previously in transaction (6).arrow_forward
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