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Chapter 1: Q10SE (page 34)

Elaine鈥檚 Inflatables earns service revenue by providing party planning services and inflatable playscapes. Elaine鈥檚 Inflatables is organized as a corporation. During the past month, Elaine鈥檚 Inflatables had the following transactions:

a. Received contributions of \(10,000 in exchange for common stock.

b. Purchased equipment for \)5,000 on account

c. Paid \(400 for office supplies.

d. Earned and received \)2,500 cash for service revenue.

e. Paid \(400 for wages to employees.

f. Cash dividends of \)1,000 were paid to stockholders.

g. Earned \(1,000 for services provided. Customer has not yet paid.

h. Paid \)1,000 for rent.

i. Received a bill for $250 for the monthly utilities. The bill has not yet been paid.

Indicate the effects of the business transactions on the accounting equation for

Elaine鈥檚 Inflatables. Transaction (a) is answered as a guide.

a. Increase asset (Cash); Increase equity (Common Stock)

Short Answer

Expert verified

(a) Increase asset (Cash); Increase equity (Common Stock)

(b)Increase asset (Equipment); Increase liability (Accounts payable)

(c) Increase asset (Office supplies); Decrease asset (Cash)

(d) Increase asset (Cash); Increase equity (Service Revenue)

(e) Decrease asset (Cash); Decrease equity (Salaries Expense)

(f) Decrease asset (Cash); Decrease equity (Dividends)

(g) Increase asset (Accounts Receivable); Increase equity (Service Revenue)

(h) ) Decrease asset (Cash); Decrease equity (Rent Expense)

(i) Increase liability (Accounts Payable); Decrease equity (Utilities Expense)

Step by step solution

01

Explanation on Accounting Equation

As per the Accounting equation general rule, total assets is equal to the sum of total liabilities and equity.

02

Explanation on Asset, Liability and Equity

Assets indicates the resources of the business, that it owns and provides economic benefits in future. It includes cash, building, land, accounts receivable, inventories, etc.

Liabilities are the obligations or debts that the business has to repay it to the creditors or lenders. It includes accounts payable, notes payable, interest payable, etc.

Equity indicates the claim of the owners of the entity on the assets of the entity. It includes common stock, revenues, retained earnings, expenses, etc.

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Most popular questions from this chapter

What is the calculation for ROA? Explain what ROA measures

Conner Thomas started a new business, Thomas Gymnastics, and completed the following transactions during December: Dec. 1 Received \(19,000 cash from Conner in exchange for common stock. 2 Received \)3,800 cash from customers for services performed. 5 Paid \(200 cash for office supplies. 9 Performed services for a customer and billed the customer for services rendered, \)4,500. 10 Received \(200 invoice for utilities due in two weeks. 15 Paid for advertising in the local paper, \)250. 20 Paid utility invoice received on December 10. 25 Collected cash in full from customer billed on December 9. 28 Paid rent for the month, \(1,600. 28 Paid \)1,450 to assistant for wages. 30 Received \(1,400 cash from customers for services performed. 31 Cash dividends of \)3,500 were paid to stockholders. Analyze the effects of the transactions on the accounting equation of Thomas Gymnastics using a format similar to Exhibit 1-6.

Centerpiece Arrangements has just completed operations for the year ended December 31, 2018. This is the third year of operations for the company. The following data have been assembled for the business: Insurance Expense \( 4,500 Salaries Expense \) 46,000 Service Revenue 70,000 Accounts Payable 17,600 Utilities Expense 1,400 Office Supplies 1,700 Rent Expense 16,000 Dividends 4,800 Common Stock 9,000 Accounts Receivable 8,000 Cash 7,200 Equipment 12,100 Retained Earnings, January 1, 2018 5,100

Preparing the balance sheet

Prepare the balance sheet of Centerpiece Arrangements as of December 31, 2018.

Tiny Town Kennel earns service revenue by caring for the pets of customers. Tiny

Town Kennel is organized as a corporation. During the past month, Tiny Town

Kennel has the following transactions:

a. Received \(520 cash for service revenue earned.

b. Paid \)325 cash for salaries expense.

c. Received a \(1,000 contribution in exchange for common stock.

d. Earned \)640 for service revenue, but the customer has not paid Tiny Town

Kennel yet.

e. Received utility bill of \(85, which will be paid next month.

f. Cash dividends of \)100 were paid to stockholders.

Indicate the effects of the business transactions on the accounting equation for Tiny

Town Kennel. Transaction (a) is answered as a guide.

Increase asset (Cash); Increase equity (Service Revenue)

Ashley Stamper opened a medical practice. During July, the first month of operation, the business, titled Ashley Stamper, MD, experienced the following events: Jul. 6 Received a contribution of \(68,000 from Stamper and opened a bank account in the name of A. Stamper, MD. The corporation issued common stock to Stamper. 9 Paid \)56,000 cash for land. 12 Purchased medical supplies for \(1,500 on account. 15 Officially opened for business. 20 Paid cash expenses: employees鈥� salaries, \)1,300; office rent, \(1,500; utilities, \)100. 31 Earned service revenue for the month, \(13,000, receiving cash. 31 Paid \)1,050 on account. Analyze the effects of these events on the accounting equation of the medical practice of Ashley Stamper, MD, using the following format:

+ 鈥� ASSETS EQUITY Rent Expense 鈥� Utilities Expense Common 鈥� Stock Contributed Capital + + Dividends Retained Earnings 鈥� Salaries Expense Service Revenue + Medical Supplies C
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