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Resources: Financial Accounting: Tools for Business Decision Making 

Write a minimum 120-word response to each of the following scenarios from Exercise E3-1 in Financial Accounting (p. 132) describing the effect of each transaction on assets, liabilities, and stockholder’s equity: 

  • Selected transactions for Thyme Advertising Company, Inc.
    • Issued common stock to investors in exchange for cash received from investors.
    • Paid monthly rent.
    • Received cash from customers when service was performed.
    • Billed customers for services performed.
    • Paid dividend to stockholders.
    • Incurred advertising expense on account.
    • Received cash from customers billed in (4).
    • Purchased additional equipment for cash.
    • Purchased equipment on account. 

Use the Excel® spreadsheet to record your answers and submitwith your responses.

Consider the following as you read: 

In the 1400’s, Luca Pacioli, who is known as the father of accounting, introduced the world to a better understanding of accounting and the double entry accounting system through his book, Summa de Arithmetica, Geometria, Proportioni et Proportionalita. Today, the same principles and concepts keep many companies around the world well informed of their financial standing:

  • How are business events captured for reporting?
  • What is the ultimate purpose of communicating accounting information?

https://phoenix.vitalsource.com/#/books/9781119228301/cfi/6/24!/4/4/2/[email protected]:63.7

E3-1 Selected transactions for Thyme Advertising Company, Inc. are listed here.

  1. Issued common stock to investors in exchange for cash received from investors.
  2. Paid monthly rent.
  3. Received cash from customers when service was performed.
  4. Billed customers for services performed.
  5. Paid dividend to stockholders.
  6. Incurred advertising expense on account.
  7. Received cash from customers billed in (4).
  8. Purchased additional equipment for cash.
  9. Purchased equipment on account.

Instructions

Describe the effect of each transaction on assets, liabilities, and stockholders’ equity. For example, the first answer is (1) Increase in assets and increase in stockholders’ equity.

Analyze the effect of transactions on assets, liabilities, and stockholders’ equity.

(LO 1), AP

SUMMARY OF TRANSACTIONS

Illustration 3-3 summarizes the transactions of Sierra Corporation to show their cumulative effect on the basic accounting equation. It includes the transaction number in the first column on the left. The right‐most column shows the specific effect of any transaction that affects stockholders’ equity. Remember that Event (9) did not result in a transaction, so no entry is included for that event. The illustration demonstrates three important points:

  1. Each transaction is analyzed in terms of its effect on assets, liabilities, and stockholders’ equity.
  2. The two sides of the equation must always be equal.
  3. The cause of each change in stockholders’ equity must be indicated.

DO IT! 1

Transaction Analysis

A tabular analysis of the transactions made by Roberta Mendez & Co., a certified public accounting firm, for the month of August is shown below. Each increase and decrease in stockholders’ equity is explained.

Describe each transaction that occurred for the month.

Action Plan

 Analyze the tabular analysis to determine the nature and effect of each transaction.

 Keep the accounting equation in balance.

 Remember that a change in an asset will require a change in another asset, a liability, or in stockholders’ equity.

SOLUTION

  1. The company issued shares of stock to stockholders for $25,000 cash.
  2. The company purchased $7,000 of equipment on account.
  3. The company received $8,000 of cash in exchange for services performed.
  4. The company paid $850 for this month’s rent.

Related exercise material: BE3-1, BE3-2, BE3-3, DO IT! 3-1, E3-1, E3-2, E3-3, and E3-4.

  

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