Question

X Company prepares monthly financial statements. The following is the company's Equities Accounts Payable Notes Payable $5,904 20,142 Assets Cash Accounts Receivable Inventory Prepayments Equipment Total Assets $39,388 5,130 13,994 3,355 69,444 Paid-In Capital Retained Earnings Total Equities 75,085 30,180 $131,311 $131,311 The following were the company's July transactions: 1. borrowed $26,000 from a bank 2. bought equipment costing $10,500, paying the manufacturer $5,600 in cash and signing a note for $4,900 3. purchased a $6,000, five-year insurance policy, paying for two years in advance 4. paid back a previous loan for $3,270 6. What was the balance in the Cash account on July 31 [ignore adjusting entries)? Submit Answer Tries 0/3 7. What were total assets on July 31 [ignore adjusting entries)?

Answer 1

When cash is borrowed from bank, cash balance increases (along total assets) and loan increases.

When the equipment is purchased with cash, cash balance decreases ( along total assets) and equipment balance increases( along total assets)

Insurance policy has been paid in advance for 2 years creating advance insurance account which is total assets and outflow of cash. The net impact on total asset would be zero here.

The loan payment decreases the cash balance(along total assets)

1.

Particulars	Amount ($)
Opening cash balance	39,388
Add: Cash borrowed from bank	26,000
Less: paid for equipment	5,600
Less: Insurance policy taken ( 6000 * 2/5)	2,400
Less: previous loan paid back	3,270
Cash balance on July 31	$ 54,118

2.

Particulars	Amount ($)
Total assets balance	131,311
Cash borrowed	26,000
Equipment bought (10,500 – 5,600)	4,900
Insurance policy paid (2,400 – 2,400)	0
Previous loan paid	(3,270)
Total assets balance on July 31	158,941

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