Question

Transactions made by Mickelson Co. for the month of March are shown below.

1. The company performed $20,000 of services for customers on account.
2. The company received $20,000 in cash from customers who had been billed for services [in transaction (1)].
3. The company received a bill for $1, 800 of advertising but will not pay it until a later date.
4. Mickelson Co. paid a cash dividend of $3,000. Prepare a tabular analysis that shows the effects of these transactions on the expanded accounting equation.
(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

Mickelson Co.

A Tabular analysis that shows the effects of these transactions on the expanded accounting equation:

Assets = Liabilities +Equity

1. Accounts receivable $20,000 = Liabilities + Retained Earnings $20,000

2. Cash $20,000 Accts Receivable -$20,000 = Liabilities + Equity

3. Assets = Liabilities $1,800 + Equity (Retained Earnings - $1,800)

4. Cash - $3,000 = Liabilities + Equity (Retained Earnings - $3,000)

Step-by-step explanation:

a) Mickelson Co.'s accounting equation shows that its Assets are always equal to its Liabilities + Equity with each given transaction. Each transaction affects either one or two sides of the equation, and so keeping it in balance. For example, the payment of Cash Dividend of $3,000 decreases Cash (Asset) by $3,000 and decreases Retained Earnings (Equity) by the same amount.