Question

Transaction Analysis Grace Stewart began the Stewart Answering Service in December. The firm provides services for professional people and is currently operating with leased equipment. On January 1, the assets and liabilities of the business were: Cash $6.400 Accounts Receivable 6,900 Accounts Payable Notes Payable 1.600 1,500 Common Stock 10,200 Retained Earnings The following transactions occurred during the month of January: Paid rent on office and equipment for January. $1.800. 1 2 Collected S6.000 on account from clients. 3 Borrowed $3,000 from a bank and signed a note payable for that amount. Billed clients for work performed on account. $12.500. 4 5 Paid $1,400 on accounts payable. 6 Received invoice for January advertising, $800. 7 Paid January salaries. $3.200. 8 Paid January utilities. $430. 9 Paid stockholders a dividend af $3,600 cash. 10 Purchased a printer (on January 31) for business use, $1,400. Paid $30 to bank as January interest on the outstanding note payable. 11 Required (a) Set up an accounting equation in columnar form with the following individual assets, liabilities, and stockholders' equity accounts: Cash, Accounts Receivable, Equipment, Accounts Payable, Notes Payable, Common Stock, and Retained Earnings. Enter the January 1 balances below each item. (Note: The beginning Equipment account balance is $0.) (b) Show the impact (increase or decrease) of the January transactions on the beginning balances, and total all columns to show that assets equal liabilities plus stockholders' equity as of January 31. Note: Use a negative sign with your answers, when needed. + Accounts Receivable + Equipment - Accounts Payable + Notes Payable + Common Stock + Retained Earnings Cash Balance 10 11

Answer 1

Solution:

Balance 1 2 4 5 Cash + Accounts Receivables + Equipments = Accounts Payable + Notes Payable + Common Stock + Retained Earnings Explanation and assumptions 6,400.00 6,900.00 1,600.00 1,500.00 10,200.00 O opening balance given -1,800.00 -1,800.00 Rent expense paid by cash 6,000.00 -6,000.00 Collected from clients (Accounts receivable) 3,000.00 3,000.00 Borrowed from bank against notes payable 12,500.00 12,500.00 Billed clients(Accounts receivable) for work performed 1,400.00 -1,400.00 Paid expenses using accounts payables 800.00 -800.00 | Received invoice for advertisement expense -3,200.00 -3,200.00 Paid salaries by cash -430.00 -430.00 Paid utilities by cash -3,600.00 -3,600.00 Paid dividend to stockholders using cash 1,400.00 1,400.00 Purchase of printer against account payables -30.00 -30.00 Paid interest to bank for outstanding notepaybles 6,340.00 13,400.00 1,400.00 5,200.00 4,500.00 10,200.00 1,240.00 21,140.00 21,140.00 -60.00 6,500.00 1,400.00 3,600.00 3,000.00 1,240.00 7 8 9 10 11 Sub-total Total Change 100.00

Blue highlighted figures show an increase in value.

Yellow highlighted figures show a decrease in value.

Green highlighted figures show no change in value.

Note: all figures with a negative sign shows the decline.