Question

The following transactions occurred during March 2021 for the Wainwright Corporation. The company owns and operates a wholesale warehouse. Issued 50,000 shares of common stock in exchange for $500,000 in cash. Purchased equipment at a cost of $80,000. $20,000 cash was paid and a notes payable to the seller was signed for the balance owed. Purchased inventory on account at a cost of $152,000. The company uses the perpetual inventory system. Credit sales for the month totaled $220,000. The cost of the goods sold was $132,000. Paid $6,750 in rent on the warehouse building for the month of March. Paid $7,300 to an insurance company for fire and liability insurance for a one-year period beginning April 1, 2021. Paid $132,000 on account for the merchandise purchased in 3. Collected $99,000 from customers on account. Recorded depreciation expense of $2,000 for the month on the equipment. Required: Analyze each transaction and show the effect of each on the accounting equation for a corporation. (Amounts to be deducted should be indicated by a minus sign. Enter the net change on the accounting equation.)

Required:
Analyze each transaction and show the effect of each on the accounting equation for a corporation. (Amounts to be deducted should be indicated by a minus sign. Enter the net change on the accounting equation.)

Answer 1

	Assets	=	Liabilities	+	Paid-in Capital	+	Retained earnings
1	$500,000	=		+	$500,000	+
2	$60,000	=	$60,000	+		+
3	$152,000	=	$152,000	+		+
4	$88,000	=		+		+	$88,000
5	($6,750)	=		+		+	($6,750)
6	N/A	=	N/A	+	N/A	+	N/A
7	($132,000)	=	($132,000)	+		+
8	N/A	=	N/A	+	N/A	+	N/A
9	($2,000)	=		+		+	($2,000)
Total	$659,250	=	$80,000	+	$500,000	+	$79,250

*N/A: Not applicable

Explanation:

For transaction 2:

Equipment-Asset is increased by $80,000 & Cash-Asset decreased by $20,000.

So, Net affect asset side is $60,000 [$80,000 - $20,000]. And

Notes payable-Liability increased by $60,000

For transaction 6:

Prepaid insurance-Asset increased & Cash-Asset decreased. So, net effect is 0

For transaction 9:

Cash-Asset increased & Accounts receivable-Asset decreased. So, net effect is 0