Question

Selected transactions for Home Place, an interior decorator corporation, in its first month of business, are as follows.

1. Issued stock to investors for $14,310 in cash.
2. Purchased used car for $10,330 cash for use in business.
3. Purchased supplies on account for $310.
4. Billed customers $4,880 for services performed.
5. Paid $180 cash for advertising start of the business.
6. Received $1,670 cash from customers billed in transaction (4).
7. Paid creditor $160 cash on account.
8. Paid dividends of $550 cash to stockholders.
For each transaction indicate:
(a) the basic type of account debited and credited (asset, liability, stockholders' equity);
(b) the specific account debited and credited (Cash, Rent Expense, Service Revenue, etc.);
(c) whether the specific account is increased or decreased; and
(d) the normal balance of the specific account.

Answer 1

1. Issued stock to investors for $14,310 in cash.

Dr Cash (asset account) 14,310 ⇒ account increases

Cr Common stock (equity account) 14,310 ⇒ account increases

2. Purchased used car for $10,330 cash for use in business.

Dr Vehicles (asset account) 10,330 ⇒ account increases

Cr Cash (asset account) 10,330 ⇒ account increases

3. Purchased supplies on account for $310.

Dr Supplies (asset account) 310 ⇒ account increases

Cr Accounts payable (liability account) 310 ⇒ account increases

4. Billed customers $4,880 for services performed.

Dr Accounts receivable (asset account) 4,880 ⇒ account increases

Cr Service revenue (revenue account) 4,880 ⇒ account increases

5. Paid $180 cash for advertising start of the business.

Dr Advertising expense (expense account) 180 ⇒ account increases

Cr Cash (asset account) 180 ⇒ account increases

6. Received $1,670 cash from customers billed in transaction (4).

Dr Cash (asset account) 1,670 ⇒ account increases

Cr Accounts receivable (asset account) 1,670 ⇒ account increases

7. Paid creditor $160 cash on account.

Dr Accounts payable (liability account) 160 ⇒ account increases

Cr Cash (asset account) 160 ⇒ account increases

8. Paid dividends of $550 cash to stockholders.

Dr Dividends (contra equity account) 550 ⇒ account increases, but total equity decreases

Cr Cash (asset account) 550 ⇒ account increases

T-accounts listed below:

cash

debit credit

1) 14,310

2) 10,330

5) 180

6) 1,670

7) 160

8) 550

4,760

vehicles common stock

debit credit debit credit

2) 10,330 1) 14,310

supplies accounts payable

debit credit debit credit

3) 310 3) 310

7) 160

150

accounts receivable service revenue

debit credit debit credit

4) 4,880 4) 4,880

6) 1,670

3,210

advertising expense dividends

debit credit debit credit

5) 180 8) 550