Question

Complete the following table showing the impact of each transaction on total assets, total liabilities and total equity. Use (+) to show an increase, (–) to show a decrease and ‘NC’ if there is no change.

		Assets	Liabilities	Shareholders’ Equity
1.	Issued common shares in exchange for a building
2.	Purchased inventory on account
3.	Paid the utility bill for that month
4.	Paid a cash dividend to common shareholders
5.	Borrowed money from the bank

Answer 1

Solution

		Assets	Liabilities	Shareholders’ Equity
1	Issued common shares in exchange for a building	+		+
2	Purchased inventory on account	+	+
3	Paid the utility bill for that month	-		-
4	Paid a cash dividend to common shareholders	-		-
5	Borrowed money from the bank	+	+

Paying cash dividend decrease stockholder's equity as dividend is paid out of retained earnings.

Payment of utility bill decrease equity because it decrease net income and hence overall equity since net income is added to retained earnings at year end.