Question

During 2017, its first year of operations as a delivery service, Concord Corporation entered into the following transactions.

1. Issued shares of common stock to investors in exchange for $181,000 in cash.
2. Borrowed $54,000 by issuing bonds.
3. Purchased delivery trucks for $60,000 cash.
4. Received $17,000 from customers for services performed.
5. Purchased supplies for $5,800 on account.
6. Paid rent of $4,800.
7. Performed services on account for $11,000.
8. Paid salaries of $29,300.
9. Paid a dividend of $10,700 to shareholders.

-Using the following tabular analysis, show the effect of each transaction on the accounting equation. Put explanations for changes to Stockholders’ Equity in the far right column. (If a transaction causes a decrease in Assets, Liabilities or Stockholders' Equity, place a negative sign (or parentheses) in front of the amount entered for the particular Asset, Liability or Equity item that was reduced, see Illustration 3-3 for example.)

Answer 1

1. Issued shares of common stock to investors in exchange for $181,000 in cash - Asset (increase) = Liabilities (NA) + Equity (increase)

2. Borrowed $54,000 by issuing bonds - Asset (increase) = Liabilities (increase) + Equity (NA)

3. Purchased delivery trucks for $60,000 cash - Asset (No effect) = Liabilities (NA) + Equity (NA)

4. Received $17,000 from customers for services performed - Asset (increase) = Liabilities (NA) + Equity (increase)

5. Purchased supplies for $5,800 on account - Asset (increase) = Liabilities (increase) + Equity (NA)

6. Paid rent of $4,800 - Asset (decrease) = Liabilities (NA) + Equity (decrease)

7. Performed services on account for $11,000 - Asset (increase) = Liabilities (NA) + Equity (increase)

8. Paid salaries of $29,300 - Asset (decrease) = Liabilities (NA) + Equity (decrease)

9. Paid a dividend of $10,700 to shareholders - Asset (decrease) = Liabilities (NA) + Equity (decrease)

Step-by-step explanation:

An accounting equation is usually expressed by this formula: Asset = Liabilities + Equity.

1. The issued shares of common stock increases Cash (Asset) by $181,000 and also increases Common stock (Equity) by the same amount.
2. The bonds payable increases Liabilities by $54,000 and Cash by the same amount.
3. The purchase of delivery truck has no effect since there is decrease in Cash and increase in Fixed asset by the same amount - both transactions affect asset.
4. The receipt from customers increases Cash and Sales revenue, which ultimately impacts Retained earnings (Equity).
5. The purchase of supplies on account means there would be an increase in Supplies (Asset) and increase in accounts payable (Liabilities).
6. If the rent paid is not a prepayment, it would be a reduction in Cash (Asset) and increase in Operating expenses (which ultimately affects Equity).
7. Services performed on account increases Sales revenue (which invariably impacts Equity) and increases Accounts receivable (Asset).
8. Payment of salaries is outflow of Cash (Asset reduced) and increase in Salaries expenses. This reduces the net income by $29,300.
9. Dividend of $10,700 causes an outflow of Cash (Asset) and reduction in Retained earnings (Equity).