Question

Sweet Shop Co. is a chain of candy stores that has been in operation for the past ten years. For each of the following transactions give the accounting effects of the adjustments required. (Enter any decreases to account balances with a minus sign.)

a. Ordered and received $12,300 worth of cotton candy machines from Candy Makers Inc., which Sweet Shop Co. will pay for in 45 days.
b. Sent a check for $6,300 to Candy Makers Inc. for the cotton candy machines from (a).
c. Received $700 from customers who bought candy on account in previous months.
d. To help raise funds for store upgrades estimated to cost $36,500, Sweet Shop Co. issued 1,300 common shares for $25 each to existing stockholders.
e. Sweet Shop Co. bought ice cream trucks for $66,000 total, paying $13,000 cash and signing a long-term note for $53,000.

Answer 1

Sweet Shop Co.

Accounting Effects of Transactions:

a. Ordered and received $12,300 worth of cotton candy machines from Candy Makers Inc., which Sweet Shop Co. will pay for in 45 days.

Assets (Equipment +$12,300) = Liabilities (Accounts Payable +$12,300) + Equity

b. Sent a check for $6,300 to Candy Makers Inc. for the cotton candy machines from (a).

Assets (Cash -$6,300) = Liabilities (Accounts payable -$6,300) + Equity

c. Received $700 from customers who bought candy on account in previous months.

Assets (Cash +$700) = Liabilities + Equity (Retained Earnings +$700)

d. To help raise funds for store upgrades estimated to cost $36,500, Sweet Shop Co. issued 1,300 common shares for $25 each to existing stockholders.

Assets (Cash +$32,500) = Liabilities + Equity (Common stock +$32,500)

e. Sweet Shop Co. bought ice cream trucks for $66,000 total, paying $13,000 cash and signing a long-term note for $53,000.

Assets (Trucks +$66,000; Cash -$13,000) = Liabilities (Long-term note payable +$53,000) + Equity

Step-by-step explanation:

The accounting effects of transactions show how the accounting equation will always remain in balance given each transaction's double-entry effects.