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Chapter 1: Q9SE (page 34)

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)

Short Answer

Expert verified

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

(b) Decrease asset (Cash); Decrease equity (Expense)

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

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

(e) Increase liability (Accounts Payable); Decrease equity (Expense)

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

Step by step solution

01

Explanation on Accounting Equation

Accounting equation is the general tool of accounting, which measures the available resource of the business and the claim on the resources.

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

You would like to start a cellular telephone equipment service business. You are considering organizing the business as a sole proprietorship. Identify the advantages and disadvantages of owning a sole proprietorship.

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

Suppose you are starting a business, Wholly Shirts, to imprint logos on T-shirts. In organizing the business and setting up its accounting records, you take your information to a CPA to prepare financial statements for the bank. Name the organization that governs the majority of the guidelines that the CPA will use to prepare financial statements for Wholly Shirts. What are those guidelines called?

The records of Felix Company show the following at December 31, 2018:

Assets & Liabilities: Equity:

Beginning: Common Stock \( 11,000

Assets \) 67,000 Dividends 8,000

Liabilities 11,000 Revenues 205,000

Ending: Expenses ?

Assets $ 46,000 Retained Earnings, January 1, 2018 45,000

Liabilities 34,000

Requirements 1. Compute the missing amount for Felix Company. You will need to determine Retained Earnings, December 31, 2018, and total stockholders鈥� equity, December 31, 2018. 2. Did Felix earn a net income or suffer a net loss for the year? Compute the amount.

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 income statement Prepare the income statement of Centerpiece Arrangements for the year ended December 31, 2018.
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