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Horngren'S Financial And Managerial Accounting
Found in: Page 48

Short Answer

Cosmo Thomas started a new business, Thomas Gymnastics, and completed the following transactions during December: Dec. 1 Received $19,000 cash from Thomas in exchange for common stock. 2 Received $3,800 cash from customers for services performed. 5 Paid $300 cash for office supplies. 9 Performed services for a customer and billed the customer for services rendered, $4,500. 10 Received $150 invoice for utilities due in two weeks. 15 Paid for advertising in the local paper, $350. 20 Paid utility invoice received on Dec. 10. 25 Collected cash in full from customer billed on Dec. 9. 28 Paid rent for the month, $2,600. 28 Paid $1,200 to assistant for wages. 30 Received $1,600 cash from customers for services performed. 31 Cash dividends of $3,000 were paid to stockholders. Analyze the effects of the transactions on the accounting equation of Thomas Gymnastics using a format similar to Exhibit 1-6.

Effect of the transaction on the accounting equation is shown as follows:

Assets

=

Liabilities

+

Equity

Contributed Capital

+

Retained Earnings

Cash

+

Accounts Receivable

+

Office Supplies

Accounts Payable

Common Stock

-

Dividends

+

Service Revenue

-

Rent Expense

-

Advertising Expense

-

Salaries Expense

-

Utilities Expense

Dec.1

+19,000

+19,000

Bal.

$19,000

=

+

$19,000

Dec.2

+3,800

+3,800

Bal.

$22,800

=

+

$19,000

+

$3,800

Dec.5

-300

+300

Bal.

$22,500

+

$300

=

+

$19,000

+

$3,800

Dec.9

+4,500

+4,500

Bal.

$22,500

+

$4,500

+

$300

=

+

$19,000

+

$8,300

Dec.10

+150

-150

Bal.

$22,500

+

$4,500

+

$300

=

$150

+

$19,000

+

$8,300

-

$150

Dec.15

-350

-350

Bal.

$22,150

+

$4,500

+

$300

=

$150

+

$19,000

+

$8,300

-

$350

-

$150

Dec. 20

-150

-150

Bal.

$22,000

+

$4,500

+

$300

=

$0

+

$19,000

+

$8,300

-

$350

-

$150

Dec.25

+4,500

-4,500

Bal.

$26,500

+

$0

+

$300

=

$0

+

$19,000

+

$8,300

-

$350

-

$150

Dec.28

-3,800

-2600

-1200

Bal.

$22,700

+

$0

+

$300

=

$0

+

$19,000

+

$8,300

-

$2,600

-

$350

-

$1,200

-

$150

Dec.30

+1,600

+1,600

Bal.

$24,300

+

$0

+

$300

=

$0

+

$19,000

+

$9,900

-

$2,600

-

$350

-

$1,200

-

$150

Dec.31

-3,000

-3,000

Bal.

$21,300

+

$0

+

$300

=

$0

+

$19,000

-

$3,000

+

$9,900

-

$2,600

-

$350

-

$1,200

-

$150

$21,600

=

$21,600

See the step by step solution

Step by Step Solution

Explanation on Transaction Analysis

Transaction analysis helps in analyzing the effect of the transactions on the accounting equation. These transactions are pertained to various operating and non-operating activities of a business organization.

Explanation on Accounting Equation

As per the accounting equation, both sides of the accounting equation should be equal. In the given case, both sides, assets’ side and liabilities’ side are equal at $21,600.

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