Question

On April 1 of the current year, Morgan Jones established a business to manage rental property. She completed the following transactions during April:

Opened a business bank account with a deposit of $46,000 in exchange for common stock.
Purchased office supplies on account, $3,180.
Received cash from fees earned for managing rental property, $8,940.
Paid rent on office and equipment for the month, $3,910.
Paid creditors on account, $1,450.
Billed customers for fees earned for managing rental property, $7,240.
Paid automobile expenses for month, $870, and miscellaneous expenses, $430.
Paid office salaries, $2,750.
Determined that the cost of supplies on hand was $1,880; therefore, the cost of supplies used was $1,300.
Paid dividends, $2,610.
Required:
1. Indicate the effect of each transaction and the balances after each transaction:
For those boxes in which no entry is required, leave the box blank.
For those boxes in which you must enter subtractive or negative numbers use a minus sign.
2. Stockholders’ equity is the right of stockholders (owners) to the assets of the business. These rights are increased by issuing common stock and revenues and decreased by dividends and expenses.
3. Determine the net income for April.
$
4. How much did April’s transactions increase or decrease stockholders’ equity?
Increased by $

Answer 1

The effects of each transaction are provided, indicating whether it increases or decreases the respective accounts. Stockholders' equity is explained and the net income for April is calculated. The increase or decrease in stockholders' equity due to April's transactions is provided.

Step-by-step explanation:

1. Opened a business bank account with a deposit of $46,000 in exchange for common stock. Effect: Increase in cash and increase in common stock.
2. Purchased office supplies on account, $3,180. Effect: Increase in office supplies and increase in accounts payable.
3. Received cash from fees earned for managing rental property, $8,940. Effect: Increase in cash and increase in revenue.
4. Paid rent on office and equipment for the month, $3,910. Effect: Decrease in cash and decrease in expenses.
5. Paid creditors on account, $1,450. Effect: Decrease in cash and decrease in accounts payable.
6. Billed customers for fees earned for managing rental property, $7,240. Effect: Increase in accounts receivable and increase in revenue.
7. Paid automobile expenses for month, $870, and miscellaneous expenses, $430. Effect: Decrease in cash and decrease in expenses.
8. Paid office salaries, $2,750. Effect: Decrease in cash and decrease in expenses.
9. Determined that the cost of supplies on hand was $1,880; therefore, the cost of supplies used was $1,300. Effect: Decrease in office supplies and increase in expenses.
10. Paid dividends, $2,610. Effect: Decrease in cash and decrease in retained earnings.

Stockholders' equity is increased by issuing common stock and revenues, and decreased by dividends and expenses. The net income for April is $5,210. April's transactions increased stockholders' equity by $7,470.

Answer 2

Morgan Jones

1. Effect of each transaction and the balances after each transaction:

a) Assets are increased by $46,000 and Equity is increased by $46,000.

Balances: Cash $46,000 and Common Stock $46,000

b) Assets are increased by $3,180 and Liabilities are increased by $3,180.

Balances: Office Supplies $3,180 and Accounts Payable $3,180

c) Assets are increased by $8,940 and Equity is increased by $8,940

Balances: Cash $54,940 and Retained Earnings $8,940

d) Assets are reduced by $3,910 and Equity is reduced by $3,910

Balances: Cash $51,030 and Retained Earnings $5,030

e) Assets are reduced by $1,450 and Liabilities are reduced by $1,450

Balances: Cash $49,580 and Accounts Payable $1,730

f) Assets are increased by $7,240 and Equity is increased by $7,240

Balances: Accounts Receivable $7,240 and Retained Earnings $12,270

g) Assets are reduced by $4,050 and Equity is reduced by $4,050

Balances: Cash $45,530 and Retained Earnings $8,220

Automobile Expenses = $870

Miscellaneous Expenses = $430

Office Salaries = $2,750

Total $4,050

h) Assets are reduced by $1,300 and Equity is reduced by $1,300

Balances: Office Supplies $1,880 and Retained Earnings $6,920

i) Assets are reduced by $2,610 and Equity is reduced by $2,610

Balances: Cash $42,920 and Retained Earnings $4,310

2. Stockholders' Equity:

Common Stock $46,000

Retained Earnings $4,310

Total Equity = $50,310

3. Net Income for April = $6,920

4. How much April's transactions increased or decreased stockholder' equity: increased by $4,310

Step-by-step explanation:

a) Effect of transactions: Each transaction affects at least two accounts, one or two of assets and one or two of liabilities and equity. The accounting equation is represented by assets = liabilities + equity. This equation is always in balance by each transaction because of the double effects of each transaction.

b) Assets are the resources owned by the entity while liabilities and equity represent resources supplied by creditors and those belonging to the stockholders in the form of resources supplied to and generated by the entity. At each point in time, the assets belong proportionately to either the creditors (liabilities) or the stockholders (equity).