Question

Transactions

Amy Austin established an insurance agency on March 1 of the current year and completed the following transactions during March:

Opened a business bank account with a deposit of $50,000 from personal funds.

Purchased supplies on account, $4,000.

Paid creditors on account, $2,300.

Received cash from fees earned on insurance commissions, $13,800.

Paid rent on office and equipment for the month, $5,000.

Paid automobile expenses for month, $1,150, and miscellaneous expenses, $300.

Paid office salaries, $2,500.

Determined that the cost of supplies on hand was $2,700; therefore, the cost of supplies used was $1,300.

Billed insurance companies for fees earned for commissions, $12,500.

Withdrew cash for personal use, $3,900.

Required:

1. Indicate the effect of each transaction and the balances after each transaction. For those boxes in which no entry is required, leave the box blank. For those boxes in which you must enter subtractive or negative numbers use a minus sign. (Example: -300)

Assets

=

Liabilities

+

Owner's Equity

Item

Cash

+

Accounts Receivable

+

Supplies

=

Accounts Payable

+

Amy Austin, Capital

-

Amy Austin, Drawing

+

Fees Earned

-

Rent Expense

-

Sal. Expense

-

Supp. Expense

-

Auto Expense

-

Misc. Expense

Item

a.

a.

b.

b.

Bal.

Bal.

c.

c.

Bal.

Bal.

d.

d.

Bal.

Bal.

e.

e.

Bal.

Bal.

f.

f.

Bal.

Bal.

g.

g.

Bal.

Bal.

h.

h.

Bal.

Bal.

i.

i.

Bal.

Bal.

j.

j.

Bal.

Bal.

2. Which of the following increased owner's equity?

3. Determine the net income for March.
$

4. March's transactions increased or decreased Amy Austin's capital to?
to $

Answer 1

Solution 1:

Item	Assets					=	Liabilities	+	Owner's Equity
	Cash	+	Accounts Receivables	+	Supplies	=	Accounts Payable	+	Amy Austin, Capital	-	Amy Austin, Drawing	+	Fees Earned	-	Rent Expense	-	Sal Expense	-	Supp. Expense	-	Auto Expense	-	Misc Expense
a.	$50,000.00								$50,000.00
b.					$4,000.00		$4,000.00
Bal.	$50,000.00				$4,000.00		$4,000.00		$50,000.00
c.	-$2,300.00						-$2,300.00
Bal.	$47,700.00				$4,000.00		$1,700.00		$50,000.00
d.	$13,800.00												$13,800.00
Bal.	$61,500.00				$4,000.00		$1,700.00		$50,000.00				$13,800.00
e.	-$5,000.00														$5,000.00
Bal.	$56,500.00				$4,000.00		$1,700.00		$50,000.00				$13,800.00		$5,000.00
f.	-$1,450.00																				$1,150.00		$300.00
Bal.	$55,050.00				$4,000.00		$1,700.00		$50,000.00				$13,800.00		$5,000.00						$1,150.00		$300.00
g.	-$2,500.00																$2,500.00
Bal.	$52,550.00				$4,000.00		$1,700.00		$50,000.00				$13,800.00		$5,000.00		$2,500.00				$1,150.00		$300.00
h.					-$1,300.00														$1,300.00
Bal.	$52,550.00				$2,700.00		$1,700.00		$50,000.00				$13,800.00		$5,000.00		$2,500.00		$1,300.00		$1,150.00		$300.00
i.			$12,500.00										$12,500.00
Bal.	$52,550.00		$12,500.00		$2,700.00		$1,700.00		$50,000.00				$26,300.00		$5,000.00		$2,500.00		$1,300.00		$1,150.00		$300.00
j.	-$3,900.00										$3,900.00
Bal.	$48,650.00		$12,500.00		$2,700.00		$1,700.00		$50,000.00		$3,900.00		$26,300.00		$5,000.00		$2,500.00		$1,300.00		$1,150.00		$300.00

Solution 2:

The onwer's equtiy is increased by item no a, d and i.

Solution 3:

Net Income for the march = Fees earned - Indirect expenses = $26,300 - $5,000 - $2,500 - $1,300 - $1,150 - $300

= $16,050

Solution 4:

March transaction increase Amy Austin's Capital to = $50,000 + $16,050 - $3,900 = $62,150