Question

On July 1, Tommy Wrigley established Wrigley Home Appraisal Services, a firm that provides expert residential appraisals and represents clients in home appraisal hearings.

TRANSACTIONS:
The owner invested $100,000 in cash to begin the business.
Paid $20,250 in cash for the purchase of equipment.
Purchased additional equipment for $15,200 on credit.
Paid $12,500 in cash to creditors.
The owner made an additional investment of $25,000 in cash.
Performed services for $9,750 in cash.
Performed services for $7,800 on account.
Paid $6,000 for rent expense.
Received $5,500 in cash from credit clients.
Paid $7,550 in cash for office supplies.
The owner withdrew $12,000 in cash for personal expenses.

Required:
Record in equation form the changes that occur in assets, liabilities, and owner’s equity for the above transactions.

Answer 1

Wrigley Home Appraisal Services

Recording the changes in assets, liabilities, and owner's equity for the above transactions in equation form:

1. Assets (Cash +$100,000) = Liabilities + Equity (Common stock +$100,000)

2. Assets (Equipment +$20,250; Cash -$20,250) = Liabilities + Equity

3. Assets (Equipment +$15,200) = Liabilities (Accounts payable +$15,200) + Equity

4. Assets (Cash - $12,500) = Liabilities (Accounts payable -$12,500) + Equity

5. Assets (Cash +$25,000) = Liabilities + Equity (Common stock +$25,000)

6. Assets (Cash +$9,750) = Liabilities + Equity (Retained earnings +$9,750)

7. Assets (Accounts receivable +$7,800) = Liabilities + Equity (Retained earnings +$7,800)

8. Assets (Cash -$6,000) = Liabilities + Equity (Retained earnings -$6,000)

9. Assets (Cash +$5,500; Accounts receivable -$5,500) = Liabilities + Equity

10. Assets (Office Supplies +$7,550 Cash -$7,550) = Liabilities + Equity

11. Assets (Cash +$12,000) = Liabilities + Equity (Common stock +$12,000)

Step-by-step explanation:

a) Data and Analysis:

1. Cash $100,000 Common stock $100,000

2. Equipment $20,250 Cash $20,250

3. Equipment $15,200 Accounts payable $15,200

4. Accounts payable $12,500 Cash $12,500

5. Cash $25,000 Common stock $25,000

6. Cash $9,750 Service Revenue $9,750

7. Accounts receivable $7,800 Service Revenue $7,800

8. Rent expense $6,000 Cash $6,000

9. Cash $5,500 Accounts receivable $5,500

10. Office Supplies $7,550 Cash $7,550

11. Common stock $12,000 Cash $12,000

b) The accounting equation is given as assets = liabilities + equity. Therefore, every transaction that occurs and is properly recorded, using the double system of accounting, keeps the equation in balance.