Question

For each of the following transactions of Dennen Inc. for the month of January 2024, indicate the accounts, amounts, and direction of the effects on the accounting equation:

a. Borrowed $30,000 from a local bank by signing a short-term note.
b. Lent $10,000 to an affiliate; accepted a note due in one year.
c. Sold 100 additional shares to investors for $500 cash.
d. Purchased $15,000 of equipment, paying $5,000 cash and signing a note for the rest due in one year.
e. Declared $2,000 in dividends to shareholders, to be paid in February.

Multiple-choice response:
a. Asset: +$30,000, Liability: +$30,000
b. Asset: +$10,000, Liability: None
c. Asset: +$500, Equity: +$500
d. Asset: +$15,000, Liability: +$10,000, Cash: -$5,000
e. Liability: +$2,000, Equity: -$2,000

Answer 1

The transactions for Dennen Inc. have been analyzed with respect to their effects on assets, liabilities, and equity, showing the financial implications of each business activity, such as borrowing, lending, equity issuance, equipment purchase, and dividend declaration.

Step-by-step explanation:

For each of the transactions provided for Dennen Inc., the accounts, amounts, and the direction of the accounting equation effects are:

• a. Asset: +$30,000, Liability: +$30,000: Borrowing $30,000 from the bank increases both the Cash asset and the Notes Payable (short-term liabilities).
• b. Asset: +$10,000, Liability: None: Lending $10,000 results in an increase in Notes Receivable (asset), with no immediate effect on liabilities.
• c. Asset: +$500, Equity: +$500: Issuing additional shares for $500 cash increases both Cash (asset) and Shareholders' Equity.
• d. Asset: +$15,000, Liability: +$10,000, Cash: -$5,000: Purchasing equipment for $15,000 with $5,000 cash and a $10,000 note increases Equipment (asset), decreases Cash (asset), and increases Notes Payable (liability).
• e. Liability: +$2,000, Equity: -$2,000: Declaring dividends increases Dividends Payable (liability) and decreases Retained Earnings (equity), but payment is not taken into account until it happens.