INDICATE THE SPECIFIC ITEM WITHIN THE ACCOUNT EQUATION ELEMENT THAT...
4)
Indicate the specific item within the account equation element that is affected.
Note: Each transaction has two entries.
Entry
Entry
Acct
Type
Name of Acct
Amount
Increase or
Acct Type
Decrease
(4)
(2)
(1)
(3)
1
2
3
4
5
6
Answer
Acct
Type
1
A
Cash
55,000 Incr
OE
Capital
55,000 Incr
2
A
Cash
7,000 Decr
L
Acct Pay
7,000 Decr
3
A
Acct Rec
2,565 Incr
R
Fees Earned
2,565 Incr
4
A
Cash
8,450 Incr
A
Acct Rec
8,450 Decr
5
A
Cash
2,500 Decr
OE
Drawing
2,500 Incr
6
L
Acct Pay
160 Incr
E
Util Exp
160 Incr
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Question Use the accounting equation to answer each of the independent questions below:
a. At the beginning of the year Norton Company assets were $75,000 and its owner’s equity was $38,000. During the year, assets increased by
$18,000 and liabilities increased by $4,000. What was the owner’s equity at the end of the year?
Answer
a. $75,000 - $38,000 = $37,000 beginning of year liabilities
($75,000 + 18,000) - ($37,000 + 4,000) = $52,000 end of year owner’s equity
b. $44,000 + $66,000 = $110,000 beginning of year assets
($110,000 + 10,000) - ($44,000 - 5,000) = $81,000 end of year owner’s equity
Question Collins Landscape Company purchased various landscaping supplies on account to be used for landscape designs for their customers.
How will this business transaction affect the accounting equation?
Answer
Increase Assets (Supplies) and increase Liabilities (Accounts Payable)
Question Bob Johnson is the sole owner of Johnson’s Carpet Cleaning Service. Bob purchased a personal automobile for $10,000 cash plus he
took out a loan for $20,000 in his name. Describe how this transaction is related to the business entity concept.
Answer
Under the business entity concept, economic data is limited to the direct activities of the business. The business is viewed as separate
from its owner. Therefore, when Bob buys a personal automobile, it is not listed on the books of Johnson’s Carpet Cleaning, unless Bob
invests it in the business. In this case, the loan is a personal debt and not a liability of the company and the cash is from Bob’s personal
account and not the company’s account.
Question Shiny Kar Company had the following transactions. For each transaction, show the effect on the accounting equation by putting the
amount and direction (plus, minus, or NC for no change) in each box of the table below.
Assets
Liabilities
Owner’s Equity
a. Don Kar withdrew $500 cash for food.
b. Shiny Kar Company sold 2 cars for a total of $55,000 on account.
c. The cost of the cars sold in (b) above was $40,000.
d. Shiny Kar received $35,000 payment for a car previously sold on account.
e. Shiny Kar paid $450 for advertising.
f. Shiny Kar purchased $150 of cleaning supplies on account.
Answer
Assets
Liabilities
Owner’s
Equity
a.
-$500
NC
-$500
b.
+$55,000
NC
+$55,000
c.
-$40,000
NC
-$40,000
d.
NC
NC
NC
e.
-$450
NC
-$450
f.
$150
$150
NC
Question Ramierez Company received their first electric bill in the amount of $60 which will be paid next month. How will this transaction affect the
accounting equation?
Answer
Increase Liabilities (Accounts Payable) and decrease Owner’s Equity (Utilities Expense)
Question Jonathan Martin is the owner and operator of Martin Consultants. At December 31, 2011, Martin Consultants has assets of $430,000
and liabilities of $205,000. Using the accounting equation and considering each case independently, determine the following:
a. Jonathan Martin, capital, as of December 31, 2011.
b. Jonathan Martin, capital, as of December 31, 2012, assuming that assets increased by $12,000 and liabilities increased by $15,000 in 2012.
c. Jonathan Martin, capital, as of December 31, 2012, assuming that assets decreased by $8,000 and liabilities increased by $14,000 during 2012.
Answer
a. $430,000 - 205,000 = $225,000
b. ($430,000 + 12,000) - ($205,000 + 15,000) = $222,000
c. ($430,000 - $8,000) - ($205,000 + 14,000) = $203,000
Question Simpson Auto Body Repair purchased $20,000 of Machinery. The company paid $8,000 in cash at the time of the purchase and signed
a promissory note for the remainder to be paid in four monthly installments.
(a) How will the purchase affect the accounting equation?
(b) How will the payment of the first monthly installment affect the accounting equation?
Answer
(a) Increase Total Assets by a net amount of $12,000 (increase Machinery $20,000 and
decrease Cash $8,000) and increase Liabilities by $12,000 (Notes Payable $12,000)
(b) Decrease Assets by $3,000 (decrease Cash) and decrease Liabilities by $3,000
(decrease Notes Payable)
Question On July 1 of the current year, the assets and liabilities of John Wong, DVM, are as follows: Cash, $15,000; Accounts Receivable,
$12,300; Supplies, $3,100; Land, $35,000; Accounts Payable, $8,700. What is the amount of owner's equity (John Wong’s capital) as of July 1 of
the current year?
$56,700
($15,000 Cash + $12,300 Accounts Receivable + $3,100 Supplies + $35,000 Land) - $8,700 Accounts Payable = $56,700
Question Indicate how the following transactions affect the accounting equation:
(a) The purchase of supplies on account.
(b) The purchase of supplies for cash.
(c) A withdraw by the owner to pay personal expenses.
(d) Revenues received in cash.
(e) Revenues received on account.
Answer
(a) Assets increase; liabilities increase
(b) No effect
(c) Assets decrease; owner's equity decreases
(d) Assets increase; owner’s equity increases
(e) Assets increase; owner’s equity increases
Question Discuss the characteristics of a LLC (Limited liability company).
Answer
A Limited liability company (LLC) combines the attributes of a partnership and a corporation. It is often used as an alternative to a
partnership because it has tax and legal liability advantages for owners.
Question Kim Hsu is the owner of Hsu’s Financial Services. At the end of its accounting period, December 31, 2011, Hsu’s has assets of
$575,000 and owner’s equity of $335,000. Using the accounting equation and considering each cased independently, determine the following
amounts.
a. Hsu’s liabilities as of December 31, 2011.
b. Hsu’s liabilities as of December 31, 2012, assuming that assets increased by $56,000 and owner’s equity decreased by $32,000.
c. Net income or net loss during 2012, assuming that as of December 31, 2012, assets were $592,000, liabilities were $450,000, and there were
no additional investments or withdrawals.
Answer
a. $575,000 - 335,000 = $240,000
b. ($575,000 + 56,000) - ($335,000 - 32,000) = $328,000
c. $592,000 - 450,000 = $142,000
$335,000 - 142,000 = $193,000 net loss
Question a. A vacant lot acquired for $83,000 cash is sold for $127,000 in cash. What is the effect of the sale on the total amount of the seller’s
(1) assets, (2) liabilities, and (3) owner’s equity?
b. Assume that the seller owes $52,000 on a loan for the land. After receiving the $127,000 cash in (a), the seller pays the $52,000 owed. What
is the effect of the payment on the total amount of the seller’s (1) assets, (2) liabilities, and (3) owner’s equity?
Answer
a.
(1) Total assets increased $44,000.
(2) No change in liabilities.
(3) Owner’s equity increased $44,000.
b.
(1) Total assets decreased $52,000.
(2) Total liabilities decreased $52,000.
(3) No change in owner’s equity.
Question Indicate whether each of the following represents an asset, liability, or owner's equity:
(a)
accounts payable
(b)
wages expense
(c)
capital
(d)
accounts receivable
(e)
withdrawal
(f)
land
Answer
(a) liability
(b) owner’s equity
(c) owner’s equity
(d) asset
(e) owner’s equity
(f)
asset
Question The Austin Land Company sold land for $85,000 in cash. The land was originally purchased for $65,000. At the time of the sale,
$40,000 was still owed to Regions Bank. After the sale, The Austin Land Company paid off the loan. Explain the effect of the sale and the payoff of
the loan on the accounting equation.
Answer
Total assets decrease $20,000 (Cash increases by $45,000; Land decreases by $65,000)
Total liabilities decrease $40,000 (Note payoff to Regions)
Owner's equity increases $20,000 (Sales price - cost of the land)
Question Given the following: Beginning capital $ 70,000
Ending capital $ 48,000
Owner's withdrawals $ 21,000
Calculate net income or net loss.
Beginning