Question

E1-7 Keystone Computer Timeshare Company entered into the following transactions during May 2015. Analyze the effect of the transactions on the expanded accounting equation. Specify the name of each component of the equation affected by the transaction. ( I already analyzed transactions 1, 2 and 8 in class and have written it for you at the end of this email.

1. Owner of the Corporation contributed $100,000 Cash in exchange for Common Stock.

2. Purchased computer terminals for $20,000 from Data Equipment on account.

3. Paid $3,000 cash for May rent on storage space.

4. Received $15,000 cash from customers for services provided today.

5. Performed computer services for Ryan Construction Company for $2,700 cash.

6. Paid Midland Power Co. $11,000 cash for energy usage in May.

7. Stockholders invested an additional $32,000 in the business.

8. Paid Data Equipment for the terminals purchased in (2) above.

9. Incurred advertising expense for May of $840 on account.

10. Paid $5,000 as dividends to stockholders

Transaction 1: Assets increased = stockholders equity increased
Cash increased +$100,000 = Common stock increased +$100,000

Transaction 2: Assets increase d = Liabilities increased
Equipment increased = Accounts Payable increased
Equipment increased +$20,000 = Accounts Payable +$20,000

Explanation for transaction 2 analysis: Purchase assets and do not pay cash (put the purchase on company’s credit card), company has obligation to pay the amount of purchase in future.

Transaction 8: Assets decreased = Liabilities decreased
Cash decreased -$20,000 = A/P decreased -$20,000
In this transaction the company is paying for the terminals that was purchased previously. In transaction 2, since company did not pay for the terminals, a liability (A/P) increased and today in transaction #8, the company pays off its liability.

Answer 1

event	accounting equation ($)	assets		liabilities		stockholders equity
cash	+	data equipment	=	accounts payable	+	common stock	retained earnings
1	cash contributed in exchange for common stock: assets increases; stockholders equity increases	100000						100000
2	data equipment purchased on account: assets increase; liabilities increase			20000		20000
3	expenses paid by cash: assets decreases;stockholders equity decreases	-3000							-3000
4	cash received from customer for services provided: assets increases; stockholders equity increases	15000							15000
5	cash received for performing computre services: assets increases; stockholders equity increases	2700							2700
6	cash paid for energy use: assets decreases;stockholders equity decreases	-11000							-11000
7	additional capital invested: assets increases; stockholders equity increases	32000						32000
8	paid for data equipment purchased earlier: assets decreases; liabilities decreases	-20000				-20000
9	incurred advertising expense on account: liabilities increases; stockholders equity decreases					840			-840
10	paid dividend to stockholders: assets decreases; stockholders equity decreases	-5000							-5000
	balance	110700		20000	=	840		132000	-2140