Question

A number of business transactions carried out by Smalling Manufacturing Company are as follows.
a. Borrowed money from a bank.
b. Sold land for cash at a price equal to its cost.
c. Paid a liability.
d. Returned for credit some of the office equipment previously purchased on credit but not yet paid for. (Treat this the opposite of a transaction in which you purchased office equipment on credit.)
e. Sold land for cash at a price in excess of cost. (Hint: The difference between cost and sales price represents a gain that will be in the company’s income statement.)
f. Purchased a computer on credit.
g. The owner invested cash in the business.
h. Purchased office equipment for cash.
i. Collected an account receivable.
Required:
1. Indicate the effects of each of these transactions on the total amounts of the company's assets, liabilities, and owner's equity.

Answer 1

Answer and Explanation:

The indications of the effect of each of following transactions are as follows

Particulars                Assets                  Liabilities          Stockholder equity

a. Borrowed            

money from bank    Increase                Decrease         No effect

b. Sold land for        Cash increase       No effect         No effect

cash at                     Land decrease

a price equal

to its cost

c. Paid a liability      Decrease                Decrease        No effect

d. Returned for credit  Decrease          Decrease        No effect

some of the office  

equipment previously

purchased on credit

but not yet paid for

e. Sold land for cash at   Cash increase       No effect         Increase as Gain

a price in excess of cost  Land decrease

f. Purchased a computer   Increase              Increase          No effect

on credit

g.  The owner invested

cash in the business         Increase               No effect         Increase

h. Purchased office       Increase in office    No effect          No effect

equipment for cash       Decrease in cash

g. Collected an              Increase in cash    No effect          No effect

account receivable        Decrease in account

                                       receivable