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Chapter 1: 48PGB (page 48)

Cosmo Thomas started a new business, Thomas Gymnastics, and completed the following transactions during December: Dec. 1 Received \(19,000 cash from Thomas in exchange for common stock. 2 Received \)3,800 cash from customers for services performed. 5 Paid \(300 cash for office supplies. 9 Performed services for a customer and billed the customer for services rendered, \)4,500. 10 Received \(150 invoice for utilities due in two weeks. 15 Paid for advertising in the local paper, \)350. 20 Paid utility invoice received on Dec. 10. 25 Collected cash in full from customer billed on Dec. 9. 28 Paid rent for the month, \(2,600. 28 Paid \)1,200 to assistant for wages. 30 Received \(1,600 cash from customers for services performed. 31 Cash dividends of \)3,000 were paid to stockholders. Analyze the effects of the transactions on the accounting equation of Thomas Gymnastics using a format similar to Exhibit 1-6.

Short Answer

Expert verified

Effect of the transaction on the accounting equation is shown as follows:

Assets

=

Liabilities

+

Equity

Contributed Capital

+

Retained Earnings

Cash

+

Accounts Receivable

+

Office Supplies

Accounts Payable

Common Stock

-

Dividends

+

Service Revenue

-

Rent Expense

-

Advertising Expense

-

Salaries Expense

-

Utilities Expense

Dec.1

+19,000

+19,000

Bal.

$19,000

=

+

$19,000

Dec.2

+3,800

+3,800

Bal.

$22,800

=

+

$19,000

+

$3,800

Dec.5

-300

+300

Bal.

$22,500

+

$300

=

+

$19,000

+

$3,800

Dec.9

+4,500

+4,500

Bal.

$22,500

+

$4,500

+

$300

=

+

$19,000

+

$8,300

Dec.10

+150

-150

Bal.

$22,500

+

$4,500

+

$300

=

$150

+

$19,000

+

$8,300

-

$150

Dec.15

-350

-350

Bal.

$22,150

+

$4,500

+

$300

=

$150

+

$19,000

+

$8,300

-

$350

-

$150

Dec. 20

-150

-150

Bal.

$22,000

+

$4,500

+

$300

=

$0

+

$19,000

+

$8,300

-

$350

-

$150

Dec.25

+4,500

-4,500

Bal.

$26,500

+

$0

+

$300

=

$0

+

$19,000

+

$8,300

-

$350

-

$150

Dec.28

-3,800

-2600

-1200

Bal.

$22,700

+

$0

+

$300

=

$0

+

$19,000

+

$8,300

-

$2,600

-

$350

-

$1,200

-

$150

Dec.30

+1,600

+1,600

Bal.

$24,300

+

$0

+

$300

=

$0

+

$19,000

+

$9,900

-

$2,600

-

$350

-

$1,200

-

$150

Dec.31

-3,000

-3,000

Bal.

$21,300

+

$0

+

$300

=

$0

+

$19,000

-

$3,000

+

$9,900

-

$2,600

-

$350

-

$1,200

-

$150

$21,600

=

$21,600

Step by step solution

01

Explanation on Transaction Analysis

Transaction analysis helps in analyzing the effect of the transactions on the accounting equation. These transactions are pertained to various operating and non-operating activities of a business organization.

02

Explanation on Accounting Equation

As per the accounting equation, both sides of the accounting equation should be equal. In the given case, both sides, assets’ side and liabilities’ side are equal at $21,600.

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Most popular questions from this chapter

Describe the similarities and differences among the four different types of business entities discussed in the chapter.

Allen Shonton recently opened his own accounting firm on April 1, which he operates as a corporation. The name of the new entity is Allen Shonton, CPA. Shonton experienced the following events during the organizing phase of the new business and its first month of operations in 2018: Apr. 5 Shonton deposited \(75,000 in a new business bank account titled Allen Shonton, CPA. The business issued common stock to Shonton. 6 Paid \)300 cash for letterhead stationery for new office. 7 Purchased office furniture for the office on account, \(9,500. 10 Consulted with tax client and received \)4,000 for services rendered. 11 Paid utilities, \(190. 12 Finished tax hearings on behalf of a client and submitted a bill for accounting services, \)20,000. 18 Paid office rent, \(750. 25 Received amount due from client that was billed on April 12. 27 Paid full amount of accounts payable created on April 7. 30 Cash dividends of \)3,500 were paid to stockholders. Requirements: Prepare the following financial statements: b. Statement of retained earnings.

Consider the following accounting terms and definitions, and match each term to the definition:

1. Accounting equation

2. Asset

3. Balance sheet

4. Expense

5. Income statement

6. Liability

7. Net income

8. Net loss

9. Revenue

10. Statement of cash flows

11. Statement of retained

earnings

a. An economic resource that is expected to be of benefit

in the future

b. Debts that are owed to creditors

c. Excess of total expenses over total revenues

d. Excess of total revenues over total expenses

e. The basic tool of accounting, stated as

Assets = Liabilities + Equity

f. Decreases in equity that occur in the course of selling

goods or services

g. Increases in equity that occur in the course of selling

goods or services

h. Reports on a business’s cash receipts and cash payments

during a period

i. Reports on an entity’s assets, liabilities, and stockholders’

equity as of a specific date

j. Reports on an entity’s revenues, expenses, and net

income or loss for the period

k. Reports how the company’s retained earnings balance

changed from the beginning to the end of the period

Canyon Canoe Company is a service-based company that rents canoes for use on local lakes and rivers. Amber and Zack Wilson graduated from college about 10 years ago. They both worked for one of the “Big Four” accounting firms and became CPAs. Because they both love the outdoors, they decided to begin a new business that will combine their love of outdoor activities with their business knowledge. Amber and Zack decide that they will create a new corporation, Canyon Canoe Company, or CCC for short. The business began operations on November 1, 2018. Nov. 1 Received \(16,000 cash to begin the company and issued common stock to Amber and Zack. 2 Signed a lease for a building and paid \)1,200 for the first month’s rent. 3 Purchased canoes for \(4,800 on account. 4 Purchased office supplies on account, \)750. 7 Earned \(1,400 cash for rental of canoes. 13 Paid \)1,500 cash for wages. 15 Paid \(50 dividends to stockholders. 16 Received a bill for \)150 for utilities. (Use separate payable account.) 20 Received a bill for \(175 for cell phone expenses. (Use separate payable account.) 22 Rented canoes to Early Start Daycare on account, \)3,000. 26 Paid \(1,000 on account related to the November 3, 2018, purchase. 28 Received \)750 from Early Start Daycare for canoe rental on November 22, 2018. 30 Paid $100 dividends to stockholders. Requirements 4. Prepare the balance sheet as of November 30, 2018.

Using the following information, calculate the return on assets. Net income for November, 2018 $ 5,000 Total assets, November 1, 2018 76,000 Total assets, November 30, 2018 80,250
See all solutions

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