Question

Indicate the effect of each transaction during the month of October 2016 and the balances for the accounting equation after all transactions have been recorded. No beginning balances exist in the accounts. An accounting equation has been provided.

a. Opened a business bank account for Jones, Inc., with an initial deposit of $45,000 in exchange for capital stock.
b. Paid rent on the office building for the month, $2,000.
c. Received cash for fees earned of $5,000.
d. Purchased equipment, $7,000.
e. Borrowed $20,000 by issuing a note payable.
f. Paid salaries for the month, $1,000.
g. Received cash for fees earned of $8,000.
h. Paid dividends, $3,000.
i. Paid interest on the note, $100.
Assets = Liabilities + Stockholders’ Equity
Cash Equipment Notes Payable Capital Stock Retained Earnings
a.
b.
c.
d.
e.
f.
g.
h.
i.
Bal.
Using the information above, prepare (1) an Income Statement, (2) a Statement of Retained Earnings, (3) a Balance Sheet, and (4) a Statement of Cash Flow for the month of October. Pay special attention to proper formatting for each statement.

Answer 1

This question is about analyzing the effect of transactions on the accounting equation and determining the balances after recording all transactions.

Step-by-step explanation:

To indicate the effect of each transaction and the balances for the accounting equation after all transactions have been recorded, we need to analyze each transaction individually:

1. a. Opened a business bank account for Jones, Inc., with an initial deposit of $45,000 in exchange for capital stock: The effect of this transaction is an increase in assets (Cash) and equity (Capital Stock). The accounting equation after this transaction would be:
   
   Assets = $45,000 (Cash)
   Liabilities = $0
   Stockholders' Equity = $45,000 (Capital Stock)
2. b. Paid rent on the office building for the month, $2,000: This transaction has no effect on the accounting equation since it involves only cash outflow. The equation remains the same.
3. c. Received cash for fees earned of $5,000: This transaction increases assets (Cash) and equity (Retained Earnings). The equation becomes:
   
   Assets = $50,000 (Cash)
   Liabilities = $0
   Stockholders' Equity = $45,000 (Capital Stock) + $5,000 (Retained Earnings)
4. d. Purchased equipment, $7,000: This transaction decreases assets (Cash) and increases assets (Equipment). The equation becomes:
   
   Assets = $43,000 (Cash) + $7,000 (Equipment)
   Liabilities = $0
   Stockholders' Equity = $45,000 (Capital Stock) + $5,000 (Retained Earnings)
5. e. Borrowed $20,000 by issuing a note payable: This transaction increases assets (Cash) and liabilities (Notes Payable). The equation becomes:
   
   Assets = $63,000 (Cash) + $7,000 (Equipment)
   Liabilities = $20,000 (Notes Payable)
   Stockholders' Equity = $45,000 (Capital Stock) + $5,000 (Retained Earnings)
6. f. Paid salaries for the month, $1,000: This transaction has no effect on the accounting equation since it involves only cash outflow. The equation remains the same.
7. g. Received cash for fees earned of $8,000: This transaction increases assets (Cash) and equity (Retained Earnings). The equation becomes:
   
   Assets = $71,000 (Cash) + $7,000 (Equipment)
   Liabilities = $20,000 (Notes Payable)
   Stockholders' Equity = $45,000 (Capital Stock) + $13,000 (Retained Earnings)
8. h. Paid dividends, $3,000: This transaction has no effect on the accounting equation since it involves only cash outflow. The equation remains the same.
9. i. Paid interest on the note, $100: This transaction has no effect on the accounting equation since it involves only cash outflow. The equation remains the same.

After all the transactions, the balances for the accounting equation would be:

• Assets = $71,000 (Cash) + $7,000 (Equipment)
• Liabilities = $20,000 (Notes Payable)
• Stockholders' Equity = $45,000 (Capital Stock) + $13,000 (Retained Earnings)