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Chapter 1: Q10SE (page 34)

Elaine’s Inflatables earns service revenue by providing party planning services and inflatable playscapes. Elaine’s Inflatables is organized as a corporation. During the past month, Elaine’s Inflatables had the following transactions:

a. Received contributions of \(10,000 in exchange for common stock.

b. Purchased equipment for \)5,000 on account

c. Paid \(400 for office supplies.

d. Earned and received \)2,500 cash for service revenue.

e. Paid \(400 for wages to employees.

f. Cash dividends of \)1,000 were paid to stockholders.

g. Earned \(1,000 for services provided. Customer has not yet paid.

h. Paid \)1,000 for rent.

i. Received a bill for $250 for the monthly utilities. The bill has not yet been paid.

Indicate the effects of the business transactions on the accounting equation for

Elaine’s Inflatables. Transaction (a) is answered as a guide.

a. Increase asset (Cash); Increase equity (Common Stock)

Short Answer

Expert verified

(a) Increase asset (Cash); Increase equity (Common Stock)

(b)Increase asset (Equipment); Increase liability (Accounts payable)

(c) Increase asset (Office supplies); Decrease asset (Cash)

(d) Increase asset (Cash); Increase equity (Service Revenue)

(e) Decrease asset (Cash); Decrease equity (Salaries Expense)

(f) Decrease asset (Cash); Decrease equity (Dividends)

(g) Increase asset (Accounts Receivable); Increase equity (Service Revenue)

(h) ) Decrease asset (Cash); Decrease equity (Rent Expense)

(i) Increase liability (Accounts Payable); Decrease equity (Utilities Expense)

Step by step solution

01

Explanation on Accounting Equation

As per the Accounting equation general rule, total assets is equal to the sum of total liabilities and equity.

02

Explanation on Asset, Liability and Equity

Assets indicates the resources of the business, that it owns and provides economic benefits in future. It includes cash, building, land, accounts receivable, inventories, etc.

Liabilities are the obligations or debts that the business has to repay it to the creditors or lenders. It includes accounts payable, notes payable, interest payable, etc.

Equity indicates the claim of the owners of the entity on the assets of the entity. It includes common stock, revenues, retained earnings, expenses, etc.

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Most popular questions from this chapter

Pretty Pictures works weddings and prom-type parties. The balance of Retained Earnings was \(20,000 at December 31, 2017. At December 31, 2018, the business’s accounting records show these balances: Insurance Expense \) 6,000 Accounts Receivable $ 5,000 Cash 42,000 Notes Payable 10,000 Accounts Payable 13,000 Retained Earnings, Dec. 31, 2018 ? Advertising Expense 4,500 Salaries Expense 30,000 Service Revenue 115,000 Equipment 85,500 Dividends 13,000 Common Stock 28,000 Prepare the following financial statements for Pretty Pictures for the year ended December 31, 2018: a. Income statement. b. Statement of retained earnings. c. Balance sheet

Suppose you are starting a business, Wholly Shirts, to imprint logos on T-shirts. In organizing the business and setting up its accounting records, you take your information to a CPA to prepare financial statements for the bank. Name the organization that governs the majority of the guidelines that the CPA will use to prepare financial statements for Wholly Shirts. What are those guidelines called?

Let’s examine a case using Greg’s Tunes and Sal’s Silly Songs. It is now the end of the first year of operations, and the stockholders want to know how well each business came out at the end of the year. Neither business kept complete accounting records, and no dividends were paid. The businesses throw together the data shown on the next page at year-end: \( 23,000 8,000 35,000 22,000 \) 10,000 6,000 44,000 9,000 Total Assets Common Stock Total Revenues Total Expenses Greg’s Tunes: Sal’s Silly Songs: Total Liabilities Common Stock Total Expenses Net Income To gain information for evaluating the businesses, the stockholders ask you several questions. For each answer, you must show your work to convince the stockholders that you know what you are talking about. Requirements 1. Which business has more assets?

Presented here are the accounts of Pembroke Bookkeeping Company for the year ended December 31, 2018: Land \( 10,000 Common Stock \) 29,000 Notes Payable 31,000 Accounts Payable 7,000 Property Tax Expense 3,100 Accounts Receivable 1,200 Dividends 28,000 Advertising Expense 12,000 Rent Expense 7,000 Building 147,400 Salaries Expense 64,000 Cash 2,800 Salaries Payable 800 Equipment 15,000 Service Revenue 192,000 Insurance Expense 1,700 Office Supplies 12,000 Interest Expense 6,600 Retained Earnings, Dec. 31, 2017 51,000 Requirements 1. Prepare Pembroke Bookkeeping Company’s income statement. 2. Prepare the statement of retained earnings. 3. Prepare the balance sheet.

What are two certifications available for accountants? Briefly explain each certification.

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