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Evaluate each of the following transactions in terms of their effect on assets, liabilities, and equity.

1. Borrow $55,000 from a bank
2. Buy $14,000 worth of manufacturing supplies on credit
3. Pay $7,000 owed to a supplier
4. Receive payment of $12,000 owed by a customer
5. Issue $75,000 in stock
6. Purchase equipment for $44,000 in cash
7. Receive payment of $13,000 owed by a customer
What is the net change in Total Assets?

User Sharuk Ahmed
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2 Answers

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19 votes

Final answer:

The net changes in the transactions reflect how each one affects the company's assets, liabilities, and equity. Borrowing from a bank, buying on credit, and issuing stock increase total assets, while paying liabilities and making cash purchases decrease them. The final calculation shows a net increase in Total Assets of $93,000.

Step-by-step explanation:

To evaluate the effects of the transactions on assets, liabilities, and equity, it is helpful to consider each one separately:

  1. Borrow $55,000 from a bank increases assets (cash) and increases liabilities (loan) by $55,000.
  2. Buy $14,000 worth of manufacturing supplies on credit increases assets (supplies) and increases liabilities (accounts payable) by $14,000.
  3. Pay $7,000 owed to a supplier decreases assets (cash) and decreases liabilities (accounts payable) by $7,000.
  4. Receive payment of $12,000 owed by a customer increases assets (cash) and decreases assets (accounts receivable) by $12,000; no net change in assets overall.
  5. Issue $75,000 in stock increases assets (cash) and increases equity (stockholder's equity) by $75,000.
  6. Purchase equipment for $44,000 in cash decreases assets (cash) and increases assets (equipment) by $44,000; no net change in assets overall.
  7. Receive payment of $13,000 owed by a customer increases assets (cash) and decreases assets (accounts receivable) by $13,000; no net change in assets overall.

The net change in Total Assets is calculated by adding the increases and subtracting the decreases. The increases are $55,000 (borrowing), $14,000 (supplies on credit), and $75,000 (issuing stock). The decreases are $7,000 (payment to the supplier) and $44,000 (purchase of equipment). The net change is:

$55,000 + $14,000 + $75,000 - $7,000 - $44,000 = $93,000 net increase in Total Assets.

User Grzegorz Oledzki
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21 votes
21 votes

Answer:

1. Borrow $55,000 from a bank

  • Assets increase by $55,000
  • Liabilities increase by $55,000
  • No effect on equity

2. Buy $14,000 worth of manufacturing supplies on credit

  • Assets increase by $14,000
  • Liabilities increase by $14,000
  • No effect on equity

3. Pay $7,000 owed to a supplier

  • Assets decrease by $7,000
  • Liabilities decrease by $7,000
  • No effect on equity

4. Receive payment of $12,000 owed by a customer

  • No effect on asset
  • No effect on liability
  • No effect on equity

5. Issue $75,000 in stock

  • Assets increase by $75,000
  • No effect on liability
  • Equity increases by $75,000

6. Purchase equipment for $44,000 in cash

  • No effect on asset
  • No effect on liability
  • No effect on equity

7. Receive payment of $13,000 owed by a customer

  • No effect on asset
  • No effect on liability
  • No effect on equity

Net change in assets = 55,000 + 14,000 - 7,000 + 75,000

= $137,000

Assets increased by $137,000

User Ralexrdz
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