Cornerstone Exercise 2-22 Transaction Analysis

The Mendholm Company entered into the following transactions:

1. Performed services on account, 521,500.
2. Collected $9,500 from client related to services performed in Item a.
3. Find $500 dividend to stockholders.
4. Paid salaries of $4,000 for the current month.

   (Continued)

Required:

Show the effect of each transaction using the following model:

Concept Introduction:

Transaction Analysis- Every transaction is first analyzed by accountant with the help of accounting equation to see transactions that affects the business event. This is known as transaction analysis which states that each transaction is analyzed to determine the effect of each transaction in two parts or dual effect on each element of an accounting equation so that the equation is in balance. The accounting equation is shown as:

  Assets=liabilities+Stockholdersequity

Requirement 1:

To show the effect on Mendholm Company when it performed services on account for $21500.

When Mendholm Company performed services for which payment will be made later, this is known as ‘sale on account’. This creates an asset called accounts receivable which will be increased by $21500because payment is due from client. Also, revenue is recorded when service is performed and not when cash is received. Thus, retained earnings will also increase by $21500. This effect in accounting equation will be shown as:

  Assets        =  Liabilities   +     Stockholder's Equity                                                Contributed  (+) Retained                                                

Concept Introduction:

Transaction Analysis- Every transaction is first analyzed by accountant with the help of accounting equation to see transactions that affects the business event. This is known as transaction analysis which states that each transaction is analyzed to determine the effect of each transaction in two parts or dual effect on each element of an accounting equation so that the equation is in balance. The accounting equation is shown as:

  Assets=liabilities+Stockholdersequity

Requirement 2:

To show the effect on Mendholm Companywhen cash of $9500 is collected from client for services performed on account.

Concept Introduction:

Transaction Analysis- Every transaction is first analyzed by accountant with the help of accounting equation to see transactions that affects the business event. This is known as transaction analysis which states that each transaction is analyzed to determine the effect of each transaction in two parts or dual effect on each element of an accounting equation so that the equation is in balance. The accounting equation is shown as:

  Assets=liabilities+Stockholdersequity

Requirement 3:

Toshow the effect on Mendholm Company whendividend of $500 is paid to stock holders.

Concept Introduction:

Transaction Analysis- Every transaction is first analyzed by accountant with the help of accounting equation to see transactions that affects the business event. This is known as transaction analysis which states that each transaction is analyzed to determine the effect of each transaction in two parts or dual effect on each element of an accounting equation so that the equation is in balance. The accounting equation is shown as:

  Assets=liabilities+Stockholdersequity

Requirement 4:

To show the effect on Mendholm Company whensalaries of $4000 is paid for current month.