Given the accounting equation, answer each of the following questions.
(a) The liabilities of Holland Company are $124,500 and its stockholders’ equity is $241,000. What is the amount of Holland Company’s total assets?
| Holland Company’s total assets | $ |
(b) The total assets of Holland Company are $191,500 and its stockholders’ equity is $87,000. What is the amount of its total liabilities?
| Holland Company’s total liabilities | $ |
(c) The total assets of Holland Company are $579,500 and its liabilities are equal to one-half of its total assets. What is the amount of Holland Company’s stockholders’ equity?
| Holland Company’s owner’s equity | $ |
Indicate whether each of the following items is an asset, liability, or part of stockholders’ equity.
| (a) | Accounts receivable | Stockholders’ Equity Assets Liability | ||
| (b) | Salaries and wages payable | Assets Liability Stockholders’ Equity | ||
| (c) | Equipment | Assets Stockholders’ Equity Liability | ||
| (d) | Supplies | Stockholders’ Equity Liability Assets | ||
| (e) | Owner’s investment | Assets Liability Stockholders’ Equity | ||
| (f) | Notes payable | Stockholders’ Equity Assets Liability |
Presented below are three business transactions. For each column, indicate whether the transactions increased, decreased, or had no effect on assets, liabilities, and stockholders’ equity.
| Assets | Liabilities | Stockholders’ Equity | ||||||
| (a) | Purchased supplies on account. | Increased Decreased No Effect | Increased Decreased No Effect | Increased Decreased No Effect | ||||
| (b) | Received cash for performing a service. | Increased Decreased No Effect | Increased Decreased No Effect | Increased Decreased No Effect | ||||
| (c) | Paid expenses in cash. | Increased Decreased No Effect | Increased Decreased No Effect | Increased Decreased No Effect |
Presented below are three business transactions. Determine the effect on assets, liabilities, and stockholders’ equity of the following three transactions. For each column, indicate whether the transactions increased, decreased , or had no effect.
| Assets | Liabilities | Stockholders’ Equity | ||||||
| (a) | Stockholders invested cash in the business for common stock. | Increased Decreased No Effect | Increased Decreased No Effect | Increased Decreased No Effect | ||||
| (b) | Paid a cash dividend. | Increased Decreased No Effect | Increased Decreased No Effect | Increased Decreased No Effect | ||||
| (c) | Received cash from a customer who had previously been billed for services performed. | Increased Decreased No Effect | Increased Decreased No Effect | Increased Decreased No Effect | ||||
Classify each of the following items as dividends, revenue, or expense.
| (a) | Advertising expense | Dividends Revenue Expense | ||
| (b) | Service revenue | Dividends Revenue Expense | ||
| (c) | Insurance expense | Dividends Revenue Expense | ||
| (d) | Salaries and wages expense | Dividends Revenue Expense | ||
| (e) | Dividends | Dividends Revenue Expense | ||
| (f) | Rent revenue | Dividends Revenue Expense | ||
| (g) | Utilities expense | Dividends Revenue Expense |
(a) The following are users of financial statements.
Identify the users as being either external users or internal users.
| Internal users External users | Customers | |
| Internal users External users | Internal Revenue Service | |
| Internal users External users | Labor unions | |
| Internal users External users | Marketing manager | |
| Internal users External users | Production supervisor | |
| Internal users External users | Securities and Exchange Commission | |
| Internal users External users | Store manager | |
| Internal users External users | Suppliers | |
| Internal users External users | Vice president of finance |
(b) The following questions could be asked by an internal user or an external user.
Identify each of the questions as being more likely asked by an internal user or an external user.
| Internal users External users | Can we afford to give our employees a pay raise? | |
| Internal users External users | Did the company earn a satisfactory income? | |
| Internal users External users | Do we need to borrow in the near future? | |
| Internal users External users | How does the company’s profitability compare to other companies? | |
| Internal users External users | What does it cost us to manufacture each unit produced? | |
| Internal users External users | Which product should we emphasize? | |
| Internal users External users | Will the company be able to pay its short-term debts? |
Match the following terms and definitions.
| (1) | Amounts due from customers | Creditor Accounts payable Accounts receivable Note payable | ||
| (2) | Amounts owed to suppliers for goods and services purchased | Note payable Accounts receivable Creditor Accounts payable | ||
| (3) | Amounts owed to bank | Creditor Accounts payable Note payable Accounts receivable | ||
| (4) | Party to whom money is owed | Accounts payable Creditor Note payable Accounts receivable |
Indicate which of these items is an asset, liability or stockholders’ equity account.
| (1) | Supplies | Stockholders’ equity Liability Assets | ||
| (2) | Dividends | Assets Liability Stockholders’ equity | ||
| (3) | Buildings | Liability Stockholders’ equity Assets | ||
| (4) | Notes Payable | Assets Liability Stockholders’ equity | ||
| (5) | Salaries and Wages Payable | Assets Liability Stockholders’ equity |
Identify the impact on the accounting equation of each of the following transactions.
| 1. | Purchase office supplies on account. | Increase assets and increase liabilities Increase liabilities and decrease stockholders’ equity. Increase liabilities and increase stockholders’ equity. Decrease assets and decrease stockholders’ equity. Increase assets and decrease stockholders’ equity. Decrease assets and increase liabilities. Increase assets and decrease assets. | ||
| 2. | Paid secretary weekly salary. | Increase liabilities and increase stockholders’ equity. Increase liabilities and decrease stockholders’ equity. Decrease assets and decrease stockholders’ equity. Increase assets and decrease stockholders’ equity. Decrease assets and increase liabilities. Increase assets and increase liabilities Increase assets and decrease assets. | ||
| 3. | Purchased office furniture for cash. | Increase liabilities and increase stockholders’ equity. Increase assets and decrease assets. Increase liabilities and decrease stockholders’ equity. Increase assets and increase liabilities Decrease assets and decrease stockholders’ equity. Increase assets and decrease stockholders’ equity. Decrease assets and increase liabilities. | ||
| 4. | Received monthly utility bill to be paid at later time. | Decrease assets and increase liabilities. Decrease assets and decrease stockholders’ equity. Increase liabilities and increase stockholders’ equity. Increase assets and increase liabilities Increase assets and decrease assets. Increase liabilities and decrease stockholders’ equity. Increase assets and decrease stockholders’ equity. |
Warning
Identify whether the following items would be reported on the income statement or balance sheet.
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Analyze the transactions of a business organized as a corporation described below and indicate whether the transaction increased, decreased or increased and decreased the accounting equation.
| Assets | = | Liabilities | + | Stockholders’ Equity | |||||
| 1. | Received cash for services provided. | Decreased Increased and decreased Increased | Increased Increased and decreased Decreased | Decreased Increased and decreased Increased | |||||
| 2. | Purchased office equipment on credit. | Decreased Increased and decreased Increased | Increased and decreased Increased Decreased | Increased Decreased Increased and decreased | |||||
| 3. | Paid employees’ salaries. | Decreased Increased and decreased Increased | Increased Increased and decreased Decreased | Increased Increased and decreased Decreased | |||||
| 4. | Received cash from customer in payment on account. | Decreased Increased and decreased Increased | Decreased Increased and decreased Increased | Increased and decreased Increased Decreased | |||||
| 5. | Paid telephone bill for the month. | Increased and decreased Increased Decreased | Increased Increased and decreased Decreased | Decreased Increased and decreased Increased | |||||
| 6. | Paid for office equipment purchased in transaction 2. | Increased Increased and decreased Decreased | Increased Increased and decreased Decreased | Increased and decreased Increased Decreased | |||||
| 7. | Purchased office supplies on credit. | Decreased Increased and decreased Increased | Increased and decreased Increased Decreased | Decreased Increased Increased and decreased | |||||
| 8. | Paid dividends. | Decreased Increased and decreased Increased | Decreased Increased Increased and decreased | Increased Decreased Increased and decreased | |||||
| 9. | Obtained a loan from the bank. | Increased and decreased Increased Decreased | Increased and decreased Decreased Increased | Increased and decreased Increased Decreased | |||||
| 10. | Billed customers for services rendered. | Increased and decreased Increased Decreased | Increased and decreased Decreased Increased | Decreased Increased Increased and decreased |
For each of the following, indicate whether the transaction increased, decreased, or had no effect on assets, liabilities, and stockholders’ equity using the following format.
Assets = Liabilities + Stockholders’ Equity
| 1. | Issued stock in exchange for cash. | ||
| 2. | Billed customers for services performed. | ||
| 3. | Purchased equipment on account. | ||
| 4. | Paid dividends. | ||
| 5. | Paid for equipment purchased in 3. above. |
| Assets | = | Liabilities | + | Stockholders’ Equity | |||
| 1. | Increased Decreased No effect | Decreased Increased No effect | Increased Decreased No effect | ||||
| 2. | No effect Increased Decreased | Decreased No effect Increased | No effect Decreased Increased | ||||
| 3. | Decreased No effect Increased | Increased Decreased No effect | Decreased No effect Increased | ||||
| 4. | Increased Decreased No effect | Decreased Increased No effect | Increased No effect Decreased | ||||
| 5. | Decreased No effect Increased | Decreased No effect Increased | No effect Increased Decreased |
Neko Case decides to open a cleaning and laundry service near the local college campus that will operate as a corporation. Analyze the following transactions for the month of June in terms of their effect on the basic accounting equation. Record each transaction by increasing (+) or decreasing (–) the dollar amount of each item affected. Indicate the new balance of each item after a transaction is recorded. It is not necessary to identify the cause of changes in stockholders’ equity.
| Transactions | |||
| (1) | Issued stock in exchange for $20,000 cash on June 1. | ||
| (2) | Purchased equipment for $5,000 paying $3,000 in cash and the remainder due in 30 days. | ||
| (3) | Purchased supplies for $1,200 cash. | ||
| (4) | Received a bill from College News for $300 for advertising in the campus newspaper. | ||
| (5) | Cash receipts from customers for cleaning and laundry amounted to $2,400. | ||
| (6) | Paid salaries of $600 to student workers. | ||
| (7) | Billed the Lion Soccer Team $450 for cleaning and laundry services. | ||
| (8) | Paid $300 to College News for advertising that was previously billed in Transaction 4. | ||
| (9) | Paid dividends of $1,200. | ||
| (10) | Incurred utility expenses for month on account, $500. | ||
| Transactions | Cash | + | Accounts Receivable |
+ | Supplies | + | Equipment | = | Accounts Payable |
+ | Common Stock |
+ | Retained Earnings |
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| Totals | $ | $ | $ | $ | $ | $ | $ |
Keystone Computer Timeshare Company entered into the following transactions during May 2017.
Describe the effect of each transaction on assets, liabilities, and stockholders’ equity.
| 1. | Purchased computers for $20,000 from Data Equipment on account. | Increase in assets, increase in liabilities Increase in assets, increase in stockholders’ equity Increase in assets, decrease in liabilities Increase in assets, decrease in stockholders’ equity Increase in assets, decrease in assets Increase in liabilities, increase in stockholders’ equity Increase in liabilities, decrease in liabilities Increase in liabilities, decrease in stockholders’ equity Increase in liabilities, decrease in assets Increase in stockholders’ equity, decrease in assets Increase in stockholders’ equity, decrease in liabilities Increase in stockholders’ equity, decrease in stockholders’ equity Decrease in assets, decrease in liabilities Decrease in assets, decrease in stockholders’ equity Decrease in liabilities, decrease in stockholders’ equity | ||
| 2. | Paid $3,000 cash for May rent on storage space. | Increase in assets, increase in liabilities Increase in assets, increase in stockholders’ equity Increase in assets, decrease in liabilities Increase in assets, decrease in stockholders’ equity Increase in assets, decrease in assets Increase in liabilities, increase in stockholders’ equity Increase in liabilities, decrease in liabilities Increase in liabilities, decrease in stockholders’ equity Increase in liabilities, decrease in assets Increase in stockholders’ equity, decrease in assets Increase in stockholders’ equity, decrease in liabilities Increase in stockholders’ equity, decrease in stockholders’ equity Decrease in assets, decrease in liabilities Decrease in assets, decrease in stockholders’ equity Decrease in liabilities, decrease in stockholders’ equity | ||
| 3. | Received $15,000 cash from customers for contracts billed in April. | Increase in assets, increase in liabilities Increase in assets, increase in stockholders’ equity Increase in assets, decrease in liabilities Increase in assets, decrease in stockholders’ equity Increase in assets, decrease in assets Increase in liabilities, increase in stockholders’ equity Increase in liabilities, decrease in liabilities Increase in liabilities, decrease in stockholders’ equity Increase in liabilities, decrease in assets Increase in stockholders’ equity, decrease in assets Increase in stockholders’ equity, decrease in liabilities Increase in stockholders’ equity, decrease in stockholders’ equity Decrease in assets, decrease in liabilities Decrease in assets, decrease in stockholders’ equity Decrease in liabilities, decrease in stockholders’ equity | ||
| 4. | Performed computer services for Ryan Construction Company for $2,700 cash. | Increase in assets, increase in liabilities Increase in assets, increase in stockholders’ equity Increase in assets, decrease in liabilities Increase in assets, decrease in stockholders’ equity Increase in assets, decrease in assets Increase in liabilities, increase in stockholders’ equity Increase in liabilities, decrease in liabilities Increase in liabilities, decrease in stockholders’ equity Increase in liabilities, decrease in assets Increase in stockholders’ equity, decrease in assets Increase in stockholders’ equity, decrease in liabilities Increase in stockholders’ equity, decrease in stockholders’ equity Decrease in assets, decrease in liabilities Decrease in assets, decrease in stockholders’ equity Decrease in liabilities, decrease in stockholders’ equity | ||
| 5. | Paid Midland Power Co. $11,000 cash for energy usage in May. | Increase in assets, increase in liabilities Increase in assets, increase in stockholders’ equity Increase in assets, decrease in liabilities Increase in assets, decrease in stockholders’ equity Increase in assets, decrease in assets Increase in liabilities, increase in stockholders’ equity Increase in liabilities, decrease in liabilities Increase in liabilities, decrease in stockholders’ equity Increase in liabilities, decrease in assets Increase in stockholders’ equity, decrease in assets Increase in stockholders’ equity, decrease in liabilities Increase in stockholders’ equity, decrease in stockholders’ equity Decrease in assets, decrease in liabilities Decrease in assets, decrease in stockholders’ equity Decrease in liabilities, decrease in stockholders’ equity | ||
| 6. | Stockholders invested an additional $32,000 in the business. | Increase in assets, increase in liabilities Increase in assets, increase in stockholders’ equity Increase in assets, decrease in liabilities Increase in assets, decrease in stockholders’ equity Increase in assets, decrease in assets Increase in liabilities, increase in stockholders’ equity Increase in liabilities, decrease in liabilities Increase in liabilities, decrease in stockholders’ equity Increase in liabilities, decrease in assets Increase in stockholders’ equity, decrease in assets Increase in stockholders’ equity, decrease in liabilities Increase in stockholders’ equity, decrease in stockholders’ equity Decrease in assets, decrease in liabilities Decrease in assets, decrease in stockholders’ equity Decrease in liabilities, decrease in stockholders’ equity | ||
| 7. | Paid Data Equipment for the computers purchased in (1) above. | Increase in assets, increase in liabilities Increase in assets, increase in stockholders’ equity Increase in assets, decrease in liabilities Increase in assets, decrease in stockholders’ equity Increase in assets, decrease in assets Increase in liabilities, increase in stockholders’ equity Increase in liabilities, decrease in liabilities Increase in liabilities, decrease in stockholders’ equity Increase in liabilities, decrease in assets Increase in stockholders’ equity, decrease in assets Increase in stockholders’ equity, decrease in liabilities Increase in stockholders’ equity, decrease in stockholders’ equity Decrease in assets, decrease in liabilities Decrease in assets, decrease in stockholders’ equity Decrease in liabilities, decrease in stockholders’ equity | ||
| 8. | Incurred advertising expense for May of $840 on account. | Increase in assets, increase in liabilities Increase in assets, increase in stockholders’ equity Increase in assets, decrease in liabilities Increase in assets, decrease in stockholders’ equity Increase in assets, decrease in assets Increase in liabilities, increase in stockholders’ equity Increase in liabilities, decrease in liabilities Increase in liabilities, decrease in stockholders’ equity Increase in liabilities, decrease in assets Increase in stockholders’ equity, decrease in assets Increase in stockholders’ equity, decrease in liabilities Increase in stockholders’ equity, decrease in stockholders’ equity Decrease in assets, decrease in liabilities Decrease in assets, decrease in stockholders’ equity Decrease in liabilities, decrease in stockholders’ equity |
