Answered

Explore IDNLearn.com's extensive Q&A database and find the answers you're looking for. Discover detailed answers to your questions with our extensive database of expert knowledge.

Exercise [tex]$2-4$[/tex] (Static)
Analyze the impact of transactions on the accounting equation (LO2-2)

Boilermaker House Painting Company incurs the following transactions for September.

Required:
For each transaction, describe the dual effect on the accounting equation. For example, for the first transaction, (1) assets increase and (2) stockholders' equity increases.

\begin{tabular}{|l|l|}
\hline
\multicolumn{1}{|c|}{Transactions} & \multicolumn{1}{c|}{Dual Effect} \\
\hline
1. Paint houses in the current month for [tex]$\$[/tex]15,000[tex]$ on account. & Assets increase and stockholders' equity increases. \\
\hline
2. Purchase painting equipment for $[/tex]\[tex]$16,000$[/tex] cash. & Assets decrease and stockholders' equity decreases. \\
\hline
3. Purchase office supplies on account for [tex]$\$[/tex]2,500[tex]$. & Assets increase and liabilities increase. \\
\hline
4. Pay employee salaries of $[/tex]\[tex]$3,200$[/tex] for the current month. & Assets decrease and stockholders' equity decreases. \\
\hline
5. Purchase advertising to appear in the current month, [tex]$\$[/tex]1,200[tex]$. & Assets decrease and stockholders' equity decreases. \\
\hline
6. Pay office rent of $[/tex]\[tex]$4,400$[/tex] for the current month. & Assets decrease and stockholders' equity decreases. \\
\hline
7. Receive [tex]$\$[/tex]10,000[tex]$ from customers in (1) above. & Assets increase and liabilities decrease. \\
\hline
\begin{tabular}{l}
8. Receive cash of $[/tex]\[tex]$5,000$[/tex] in advance from a customer who plans to have his house \\
painted in the following month.
\end{tabular} & Assets increase and liabilities increase. \\
\hline
\end{tabular}

Sagot :

GinnyAnsweridn
Let's analyze the impact of each transaction on the accounting equation, which is Assets = Liabilities + Stockholders' Equity. Each transaction will affect at least two of these components.

### Transaction Analysis:

#### 1. Paint houses in the current month for [tex]$15,000 on account. - Assets: Increase by $[/tex]15,000 (accounts receivable)
- Stockholders' Equity: Increase by [tex]$15,000 (revenue increases net income, thereby increasing stockholders' equity) Dual Effect: Assets increase and stockholders' equity increases. #### 2. Purchase painting equipment for $[/tex]16,000 cash.
- Assets: Decrease by [tex]$16,000 (cash decreases) - Stockholders' Equity: Decrease by $[/tex]16,000 (expense reduces net income, thereby decreasing stockholders' equity)

Dual Effect: Assets decrease and stockholders' equity decreases.

#### 3. Purchase office supplies on account for [tex]$2,500. - Assets: Increase by $[/tex]2,500 (office supplies)
- Liabilities: Increase by [tex]$2,500 (accounts payable) Dual Effect: Assets increase and liabilities increase. #### 4. Pay employee salaries of $[/tex]3,200 for the current month.
- Assets: Decrease by [tex]$3,200 (cash decreases) - Stockholders' Equity: Decrease by $[/tex]3,200 (expense reduces net income, thereby decreasing stockholders' equity)

Dual Effect: Assets decrease and stockholders' equity decreases.

#### 5. Purchase advertising to appear in the current month for [tex]$1,200. - Assets: Decrease by $[/tex]1,200 (cash decreases)
- Stockholders' Equity: Decrease by [tex]$1,200 (expense reduces net income, thereby decreasing stockholders' equity) Dual Effect: Assets decrease and stockholders' equity decreases. #### 6. Pay office rent of $[/tex]4,400 for the current month.
- Assets: Decrease by [tex]$4,400 (cash decreases) - Stockholders' Equity: Decrease by $[/tex]4,400 (expense reduces net income, thereby decreasing stockholders' equity)

Dual Effect: Assets decrease and stockholders' equity decreases.

#### 7. Receive [tex]$10,000 from customers in (1) above. - Assets: Increase by $[/tex]10,000 (cash increases)
- Liabilities: Decrease by [tex]$10,000 (accounts receivable decreases) Dual Effect: Assets increase and liabilities decrease. #### 8. Receive cash of $[/tex]5,000 in advance from a customer who plans to have his house painted in the following month.
- Assets: Increase by [tex]$5,000 (cash increases) - Liabilities: Increase by $[/tex]5,000 (unearned revenue, a liability, increases)

Dual Effect: Assets increase and liabilities increase.

Each transaction has been described with its corresponding dual effect on the accounting equation.
Your presence in our community is highly appreciated. Keep sharing your insights and solutions. Together, we can build a rich and valuable knowledge resource for everyone. IDNLearn.com is committed to your satisfaction. Thank you for visiting, and see you next time for more helpful answers.