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Chapter 1: Q41PGA (page 44)

Conner Thomas started a new business, Thomas Gymnastics, and completed the following transactions during December: Dec. 1 Received \(19,000 cash from Conner in exchange for common stock. 2 Received \)3,800 cash from customers for services performed. 5 Paid \(200 cash for office supplies. 9 Performed services for a customer and billed the customer for services rendered, \)4,500. 10 Received \(200 invoice for utilities due in two weeks. 15 Paid for advertising in the local paper, \)250. 20 Paid utility invoice received on December 10. 25 Collected cash in full from customer billed on December 9. 28 Paid rent for the month, \(1,600. 28 Paid \)1,450 to assistant for wages. 30 Received \(1,400 cash from customers for services performed. 31 Cash dividends of \)3,500 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

-

Salaries Expense

-

Utilities Expense

-

Advertising 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

-200

+200

Bal.

$22,600

+

$200

=

+

$19,000

+

$3,800

Dec 9

+4,500

+4,500

Bal.

$22,600

+

$4,500

+

$200

=

+

$19,000

+

$8,300

Dec 10

+200

-200

Bal.

$22,600

+

$4,500

+

$200

=

$200

+

$19,000

+

$8,300

-

$200

Dec 15

-250

-250

Bal.

$22,350

+

$4,500

+

$200

=

$200

+

$19,000

+

$8,300

-

$200

-

$250

Dec 20

-200

-200

Bal.

$22,150

+

$4,500

+

$200

=

$0

+

$19,000

+

$8,300

-

$200

-

$250

Dec 25.

+4500

-4,500

Bal.

$26,650

+

$0

+

$200

=

$0

+

$19,000

+

$8,300

-

$200

-

$250

Dec 28

-1600

-1600

Dec 28

-1450

-1450

Bal

$23,600

+

$0

+

$200

=

$0

+

$19,000

+

$8,300

-

$1,600

-

$1,450

-

$200

-

$250

Dec30

+1,400

+1,400

Bal

$25,000

+

$0

+

$200

=

$0

+

$19,000

+

$9,700

-

$1,600

-

$1,450

-

$200

-

$250

Dec 31

-3500

-3500

Bal.

$21,500

+

$0

+

$200

=

$0

+

$19,000

-

$3,500

+

$9,700

-

$1,600

-

$1,450

-

$200

-

$250

$21,700

$21,700

Step by step solution

01

Explanation on Transaction Analysis

Trasaction analysis helps in analyzing the effect of the transaction on the accounting equation.

02

Explanation on Accounting Equation

As per the accounting equation,both side of the accounting equation should be equal. .

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Most popular questions from this chapter

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; 6. Which of the foregoing questions do you think is most important for evaluating these two businesses? Why?

Abby Perry recently opened her own law office on December 1, which she operates as a corporation. The name of the new entity is Abby Perry, Attorney. Perry experienced the following events during the organizing phase of the new business and its first month of operation, December 2018. Some of the events were personal and did not affect the law practice. Others were business transactions and should be accounted for by the business. Dec. 1 Sold personal investment in Nike stock, which she had owned for several years, receiving \(30,000 cash. 2 Deposited the \)30,000 cash from the sale of the Nike stock in her personal bank account. 3 Deposited \(89,000 cash in a new business bank account titled Abby Perry, Attorney. The business issued common stock to Perry. 5 Paid \)600 cash for ink cartridges for the printer. 7 Purchased computer for the law office, agreeing to pay the account, \(8,000, within three months. 9 Received \)2,900 cash from customers for services rendered. 15 Received bill from The Lawyer for magazine subscription, \(300. (Use Miscellaneous Expense account.) 23 Finished court hearings on behalf of a client and submitted a bill for legal services, \)8,000, on account. 28 Paid bill from The Lawyer. 30 Paid utilities, \(900. 31 Received \)2,800 cash from clients billed on Dec. 23. 31 Cash dividends of $3,000 were paid to stockholders. Requirements 1. Analyze the effects of the preceding events on the accounting equation of Abby Perry, Attorney. Use a format similar to Exhibit 1-6. 2. Prepare the following financial statements: a. Income statement. b. Statement of retained earnings. c. Balance sheet. d. Statement of cash flows.

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 2. Prepare the income statement of Canyon Canoe Company for the month ended November 30, 2018.

What does the going concern assumption mean for a business?

Exeter is a building contractor on the Gulf Coast. After losing a number of big lawsuits, it was facing its first annual net loss as the end of the year approached. The owner, Hank Snow, was under intense pressure from the company’s creditors to report positive net income for the year. However, he knew that the controller, Alice Li, had arranged a short-term bank loan of $10,000 to cover a temporary shortfall of cash. He told Li to record the incoming cash as “construction revenue” instead of a loan. That would nudge the company’s income into positive territory for the year, and then, he said, the entry could be corrected in January when the loan was repaid. Requirements 1. How would this action affect the year-end income statement? How would it affect the year-end balance sheet? 2. If you were one of the company’s creditors, how would this fraudulent action affect you?

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