Question

In: Accounting

For each of the following events, indicate the accounts affected, whether they would increase or decrease,...

For each of the following events, indicate the accounts affected, whether they would increase or decrease, and the amount by which they would change. Also demonstrate that the accounting equation will remain in balance after these effects are reported. If the event should not to be recorded as a transaction, state so.

A. Borrowed $7,000,000 cash, signing a promissory note.
B. Bought a factory for $800,000, paying $200,000 in cash and signing a promissory note for $600,000.
C. Rented equipment for $10,000 a month and made a payment for six months in advance.
D. Paid $104,000 for insurance coverage that will begin next month.
E. Purchased $30,000 of supplies on account, of which $10,000 is intended for use next month, and the remainder in later months.
F. Hired 20 workers at $500 a week each and paid all 20 workers for the four weeks of work done during the month.
G. Raised prices by 10%.
H. Received a 50% prepayment from a customer on a $20,000 order to be filled next month.

Solutions

Expert Solution

Answer

A. Assets = Liabilities + Shareholders' Equity.

Assets increased $7 million and liabilities increased $7 million.

The accounting equation still balances.

B. Assets = Liabilities + Shareholders' Equity.

Assets increased $600,000 (+$800,000 in property and-$200,000 in cash) and Liabilities increased $600,000.

The accounting equation still balances.

C. Assets = Liabilities + Shareholders' Equity

Assets are unchanged (+$60,000 in prepaid expenses and-$60,000 in cash).

The accounting equation still balances.

D. Assets = Liabilities + Shareholders' Equity.

Assets were unchanged (+104,000 in prepaid insurance and -104,000 in cash).

The accounting equation still balances

E. Assets = Liabilities + Shareholders' Equity.

Assets increased $30,000 and Liabilities increased $30,000.

The accounting equation still balances.

F. Assets = Liabilities + Shareholders' Equity.

Assets decreased $40,000 and Shareholders' Equity decreased by $40,000.

The accounting equation still balances

G. This event would not be recorded as a transaction; there is no impact on the accounting equation

H. Assets = Liabilities + Shareholders' Equity.

Assets increased $10,000 and Liabilities increased $10,000.

The accounting equation still balances

ekkarill92 answered 2 years ago
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