Corporate Financial Accounting
Corporate Financial Accounting
15th Edition
ISBN: 9781337398169
Author: Carl Warren, Jeff Jones
Publisher: Cengage Learning
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Textbook Question
Chapter 1, Problem 1.3BE

Transactions

Interstate Delivery Service is owned and operated by Katie Wyer. The following selected transactions were completed by Interstate Delivery during May:

  1. 1. Received cash in exchange for common stock, $18,000.
  2. 2. Paid advertising expense, $4,850.
  3. 3. Purchased supplies on account, $2,100.
  4. 4. Billed customers for delivery services on account, $14,700.
  5. 5. Received cash from customers on account. $8,200.

Indicate the effect of each transaction on the following accounting equation elements: Assets, Liabilities, Common Stock, Dividends, Revenue, and Expense. To illustrate, the answer to (1) follows:

(1) Asset (Cash) increases by $18,000: Common Stock increases by $18,000.

Expert Solution & Answer
Check Mark
To determine

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

Assets = Liabilities + Owners' EquityAssets = Liabilities+{(Owners' investments)+(Owners' withdrawals)+((Revenues)(Expenses))}

To analyze: Business transactions by indicating their effects on accounting equation.

Explanation of Solution

1.

Transaction: Cash of $18,000 received from owner.

Accounting equation effect:

Assets = Liabilities+{(Owners' investments)+(Owners' withdrawals)+((Revenues)(Expenses))}Cash    =KW, Capital+$18,000 =+$18,000

Therefore, Asset (Cash) increases by $18,000; Owners’ equity (KW, Capital) increases by $18,000.

2.

Transaction: Paid cash of $4,850 for on advertising expenses.

Accounting equation effect:

Assets = Liabilities+{(Owners' investments)+(Owners' withdrawals)+((Revenues)(Expenses))}Cash   =Advertising Expense–$4,850 =–$4,850

Therefore, Asset (Cash) decreases by $4,850; Owners’ equity (Advertising Expense) decreases by $4,850.

3.

Transaction: Purchased supplies of $2,100 on account.

Accounting equation effect:

Assets = Liabilities +{(Owners' investments)+(Owners' withdrawals)+((Revenues)(Expenses))}Supplies  =(Accounts Payable)+$2,100 =+$2,100

Therefore, Asset (Supplies) increases by $2,100; Liabilities (Accounts Payable) increases by $2,100.

4.

Transaction: Performed services of $14,700 on account.

Accounting equation effect:

Assets = Liabilities+{(Owners' investments)+(Owners' withdrawals)+((Revenues)(Expenses))}(Accounts Receivable)=(Delivery Service Fee)+$14,700      =+$14,700

Therefore, Asset (Accounts Receivable) increases by $14,700; Owners’ equity (Delivery Service Fee) increases by $14,700.

5.

Transaction: Received $8,200 for services performed on account.

Accounting equation effect:

Assets = Liabilities+{(Owners' investments)+(Owners' withdrawals)+((Revenues)(Expenses))}Cash+(Accounts Receivable)   =+$8,200   +      –$8,200        =

Therefore, Asset (Cash) increases by $8,200; Asset (Accounts Receivable) decreases by $8,200.

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Chapter 1 Solutions

Corporate Financial Accounting

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