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Transactions The following selected transactions were completed by Cota Delivery Service during July: 1. Received cash in exchange for common stock, $35,000. 2. Purchased supplies for cash, $1,100. 3. Paid rent for October, $4,500. 4. Paid advertising expense, $900. 5. Received cash for providing delivery services, $33,000. 6. Billed customers for delivery services on account, $58,000. 7. Paid creditors on account, $2,900. 8. Received cash from customers on account, $27,500. 9. Determined that the cost of supplies on hand was $300 and $8,600 of supplies had been used during the month. 10. Paid cash dividends, $2,500. Indicate the effect of each transaction on the accounting equation by listing the numbers identifying the transactions, (1) through (10), in a column, and inserting at the right of each number the appropriate letter from the following list: A. Increase in an asset, decrease in another asset. B. Increase in an asset, increase in a liability. C. Increase in an asset, increase in stockholders’ equity. D. Decrease in an asset, decrease in a liability. E. Decrease in an asset, decrease in stockholders’ equity.

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Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663

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Chapter
Section
BuyFindarrow_forward

Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663
Chapter 1, Problem 12E
Textbook Problem
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Transactions

The following selected transactions were completed by Cota Delivery Service during July:

  1. 1. Received cash in exchange for common stock, $35,000.
  2. 2. Purchased supplies for cash, $1,100.
  3. 3. Paid rent for October, $4,500.
  4. 4. Paid advertising expense, $900.
  5. 5. Received cash for providing delivery services, $33,000.
  6. 6. Billed customers for delivery services on account, $58,000.
  7. 7. Paid creditors on account, $2,900.
  8. 8. Received cash from customers on account, $27,500.
  9. 9. Determined that the cost of supplies on hand was $300 and $8,600 of supplies had been used during the month.
  10. 10. Paid cash dividends, $2,500.

Indicate the effect of each transaction on the accounting equation by listing the numbers identifying the transactions, (1) through (10), in a column, and inserting at the right of each number the appropriate letter from the following list:

  1. A. Increase in an asset, decrease in another asset.
  2. B. Increase in an asset, increase in a liability.
  3. C. Increase in an asset, increase in stockholders’ equity.
  4. D. Decrease in an asset, decrease in a liability.
  5. E. Decrease in an asset, decrease in stockholders’ equity.

To determine

Indicate the effect of given transactions on accounting equation.

Explanation of Solution

Accounting equation: Accounting equation is an accounting tool expressed in the form of equation, by creating a relationship between the resources or assets of a company, and claims on the resources by the creditors and the owners. Accounting equation is expressed as shown below:

  Assets = Liabilities + Owners' Equity

The effect of given transaction on the accounting equation is shown below.

  1. 1.      Received cash from owner as additional investment, $35,000

Accounting equation effect:

 Asset =Liabilities+Owner's Equity
 Cash =Liabilities+Owner's Equity
  (+) $35,000 =  (+) $35,000
Bal $35,000  =  $35,000

Table (2)

In assets cash increases by $35,000; Owners’ equity increases by $35,000.

  1. 2.      Purchased supplies for cash, $1,100.

Accounting equation effect:

 Asset =Liabilities+Owner's Equity
 Cash+Supplies =Liabilities+Owner's Equity
Bal $ 25,000    =  $ 25,000
 (-)$1,100(+) $1,100 =  
Bal $ 23,900  $1,100  =  $ 25,000

Table (3)

In assets cash decreases by $1,100, while supplies increases by $1,100.

  1. 3.      Paid rent for October, $4,500.

Accounting equation effect:

  

 Asset =Liabilities+Owner's Equity
 Cash =Liabilities+Owner's Equity
Bal $25,000  =  $25,000
  (-) $4,500 =  (-) $4,500
Bal $20,500  =  $20,500

Table (4)

In assets cash decreases by $4,500, while owner's equity decreases by $4,500.

  1. 4.      Paid advertising expense, $900.

Accounting equation effect:

 Asset =Liabilities+Owner's Equity
 Cash =Liabilities+Owner's Equity
Bal $25,000  =  $25,000
  (-) $900 =  (-) $900
Bal $24,100  =  $24,100

Table (5)

In assets cash decreases by $900, while owner's equity decreases by $900.

  1. 5.      Received cash for providing delivery services, $33,000.

Accounting equation effect:

 Asset =Liabilities+Owner's Equity
 Cash =Liabilities+Owner's Equity
Bal $25,000  =  $25,000
  (+) $33,000 =  (+) $33,000
Bal $58,000  =  $58,000

Table (6)

In assets cash increases by $33,000, while owner's equity increases by $33,000

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