Analyze the effect of each transaction on the accounting equation. For example, if salaries of $500 were paid, the answer would be "Decrease in stockholders' equity (expense) $500 and decrease in assets (cash) $500."
a. Performed consulting services for a client in exchange for $3,200 cash. Increase assets (cash)
- Increase assets (cash)
- Decrease assets (cash)
- Decrease stockholders' equity (revenue)
$3,200 and - increase stockholders' equity (revenue)
- decrease assets (cash)
- decrease stockholders' equity (revenue)
$3,200.
b. Performed consulting services for a client on account, $1,700.
- Increase assets (accounts receivable)
- Increase assets (cash)
- Decrease stockholders' equity (revenue)
$1,700 and - increase stockholders' equity (revenue)
- decrease assets (accounts receivable)
- decrease stockholders' equity (revenue)
$1,700.
c. Paid $30,000 cash for land.
- Increase assets (land)
- Decrease stockholders' equity (expense)
- Decrease assets (land)
$30,000 and - decrease stockholders' equity (expense)
- decrease assets (cash)
- increase liabilities (notes payable)
$30,000.
d. Purchased office supplies on account, $900.
- Increase assets (supplies)
- Decrease assets (supplies)
- Decrease liabilities (accounts payable)
$900 and - increase liabilities (accounts payable)
- decrease assets (supplies)
- decrease liabilities (accounts payable)
$900.
e. Paid a $2,500 cash dividend to stockholders.
- Increase assets (cash)
- Increase stockholders' equity (dividend)
- Decrease assets (cash)
$2,500 and - increase assets (cash)
- increase stockholders' equity (dividend)
- decrease stockholders' equity (dividend)
$2,500.
f. Paid $550 on account for supplies purchased in Transaction d.
- Increase assets (cash)
- Increase liabilities (accounts payable)
- Decrease assets (cash)
$550 and - increase assets (cash)
- increase liabilities (accounts payable)
- decrease liabilities (accounts payable)
$550.
g. Paid $800 cash for the current month's rent.
- Increase assets (cash)
- Decrease stockholders' equity (expense)
- Increase liability (payable)
$800 and - increase assets (cash)
- decrease assets (cash)
- decrease assets (cash)
$800.
h. Collected $1,500 from client in Transaction b.
- Increase assets (cash)
- Increase assets (accounts receivable)
- Decrease assets (cash)
$1,500 and - increase assets (accounts receivable)
- decrease assets (cash)
- decrease assets (accounts receivable)
$1,500.
i. Stockholders invested $20,000 cash in the business.
- Increase assets (cash)
- Decrease assets (cash)
- Decrease stockholders' equity (common stock)
$20,000 and - increase stockholders' equity (common stock)
- decrease assets (cash)
- decrease stockholders' equity (common stock)
$20,000.
2. Conceptual Connection: For Event d, what accounting principle did you use to determine the amount to be recorded for supplies?
- Conservatism principle
- Expense recognition principle
- Historical cost principle
2)
Kauai Adventures rents and sells surfboards, snorkeling, and scuba equipment. During March, Kauai engaged in the following transactions:
| March Transactions: |
| Mar. | 2 | Received $51,500 cash from customers for rental. |
| | 3 | Purchased on credit ten new surfboards (which Kauai classifies as inventory) for $180 each. |
| | 6 | Paid wages to employees in the amount of $9,200. |
| | 9 | Paid office rent for the month in the amount of $1,000. |
| | 12 | Purchased a new Ford truck for $40,800; paid $1,000 down in cash and secured a loan from Princeville Bank for the $39,800 balance. |
| | 13 | Collected a $1,050 account receivable. |
| | 16 | Paid an account payable in the amount of $950. |
| | 23 | Borrowed $10,000 on a 6-month, 8% note payable. |
| | 27 | Paid the monthly telephone bill of $185. |
| | 30 | Paid a monthly advertising bill of $1,550. |
| | Required: |
| | Prepare a journal entry for each of these transactions. |
| CHART OF ACCOUNTS |
| Kauai Adventures |
| General Ledger |
| | ASSETS | | 111 | Cash | | 121 | Accounts Receivable | | 122 | Notes Receivable | | 123 | Supplies | | 124 | Prepaid Insurance | | 125 | Prepaid Rent | | 126 | Inventory | | 131 | Land | | 132 | Buildings | | 133 | Equipment | | 134 | Furniture | | 135 | Trucks | | 139 | Accumulated Depreciation | | | LIABILITIES | | 211 | Accounts Payable | | 212 | Notes Payable | | 213 | Income Taxes Payable | | 214 | Wages Payable | | 215 | Utilities Payable | | 216 | Insurance Payable | | 217 | Interest Payable | | 218 | Rent Payable | | 219 | Unearned Service Revenue | | 231 | Bonds Payable | | | EQUITY | | 311 | Common Stock | | 321 | Retained Earnings | | 331 | Dividends | | | | REVENUE | | 411 | Sales Revenue | | 412 | Service Revenue | | 413 | Interest Income | | | EXPENSES | | 511 | Cost of Goods Sold | | 512 | Advertising Expense | | 513 | Supplies Expense | | 514 | Utilities Expense | | 515 | Rent Expense | | 516 | Insurance Expense | | 517 | Repairs and Maintenance Expense | | 521 | Wages Expense | | 531 | Interest Expense | | 532 | Depreciation Expense | | 533 | Income Taxes Expense | |
