Question

Following are the transactions of Dennen, Inc., for the month of January. Borrowed $30,000 from a local bank. Lent $10,000 to an affiliate; accepted a note due in one year. Sold to investors 100 additional shares of stock with a par value of $0.10 per share and a market price of $5 per share; received cash. Purchased $15,000 of equipment, paying $5,000 cash and signing a note for the rest due in one year. Declared and paid $2,000 in dividends to stockholders. For each of the above transactions of Dennen, Inc., for the month of January, indicate the accounts, amounts, and direction of the effects (+ for increase and − for decrease) on the accounting equation.

Answer 1

The transactions of Dennen, Inc. affect the company's accounting equation by increasing or decreasing assets, liabilities, and equity through borrowing, lending, selling shares, purchasing equipment, and paying dividends.

Step-by-step explanation:

For each transaction of Dennen, Inc. in January, the effects on the accounting equation (Assets = Liabilities + Equity) are as follows:

• Borrowed $30,000: Cash (Asset) increases by $30,000, Notes Payable (Liability) increases by $30,000.
• Lent $10,000 to an affiliate: Notes Receivable (Asset) increases by $10,000, Cash (Asset) decreases by $10,000, no net effect on total Assets.
• Sold 100 shares of stock at $5 each: Cash (Asset) increases by $500, Common Stock (Equity) increases by $10 (100 shares x $0.10 par value), and Additional Paid-in Capital (Equity) increases by $490 (100 shares x [$5 - $0.10] market price above par).

• Purchased $15,000 of equipment: Equipment (Asset) increases by $15,000, Cash (Asset) decreases by $5,000, and Notes Payable (Liability) increases by $10,000.
• Declared and paid $2,000 in dividends: Retained Earnings (Equity) decreases by $2,000, Cash (Asset) decreases by $2,000.

Answer 2

(A) Cash +30,000 Dr

(L) Notes payable +30,000 Cr

(A) Notes receivable +10,000 Dr

(A) Cash - 10,000 Cr

(A) Cash +500 Dr

(S) Common stock +10 Cr

(S) Additional paid-­in capital +490 Cr

(A) Equipment +15,000 Dr

(A) Cash -5,000 Cr

(L) Notes payable +10,000 Cr

(A) Cash -2,000 Cr

(S) Retained earnings -2,000 Dr

Step-by-step explanation:

(A) = Assets

(L) = Liabilities

(S) = Stockholders' Equity

(A) = (L) + (S)

Borrowed $30,000 from a local bank.

A bank loan is a cash debit with liabilities credit

(A) Cash +30,000 Dr

(L) Notes payable +30,000 Cr

Lent $10,000 to an affiliate; accepted a note due in one year.

Two assets are involved in the operation: the first is the receivable that was accepted for one year, and the second is a cash outflow

(A) Notes receivable +10,000 Dr

(A) Cash - 10,000 Cr

Sold to investors 100 additional shares of stock with a par value of $0.10 per share and a market price of $5 per share; received cash.

The sale of 100 shares at $5 (market price) each is a cash debit of 100 x $5 = $500. A credit must be made to the "Common Stock" account of the number of shares for the nominal value, that is 100 x $0.10 = $10; Finally, a credit is made to the "Additional paid-in capital" account for the difference between $500 and $10, that is $490.

(A) Cash +500 Dr

(S) Common stock +10 Cr

(S) Additional paid-­in capital +490 Cr

Purchased $15,000 of equipment, paying $5,000 cash and signing a note for the rest due in one year.

Three accounts are affected in the operation: Equipment has a debit of $15,000 which is its purchase value; then there is a $5,000 cash credit that was paid in cash; and a Note payable from the rest, that is a credit of $10,000 ($15,000 - $5,000).

(A) Equipment +15,000 Dr

(A) Cash -5,000 Cr

(L) Notes payable +10,000 Cr

Declared and paid $2,000 in dividends to stockholders.

A debit of $ 2,000 is made to retained earnings to deduct your balance; then a credit or cash out is made for the same amount $ 2,000 that was paid.

(A) Cash -2,000 Cr

(S) Retained earnings -2,000 Dr

Hope this helps!