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Q26E

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Horngren'S Financial And Managerial Accounting
Found in: Page 39

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Short Answer

Indicate the effects of the following business transactions on the accounting equation of Vivian’s Online Video store. Transaction (a) is answered as a guide. a. Received cash of $10,000 from issuance of common stock. Answer: Increase asset (Cash); Increase equity (Common Stock) b. Earned video rental revenue on account, $2,800. c. Purchased office furniture on account, $300. d. Received cash on account, $400. e. Paid cash on account, $100. f. Rented videos and received cash of $200. g. Paid monthly office rent of $1,000. h. Paid $100 cash to purchase office supplies

(a) Increase asset (Cash); Increase equity (Common Stock)

(b) Increase asset (Accounts Receivable); Increase equity (Rental Revenue)

(c) Increase asset (Furniture); Increase liability (Accounts Payable)

(d) Increase asset (Cash);Decrease asset (Accounts Receivable)

(e) Decrease asset (Cash); Decrease liability (Accounts Payable)

(f) Increase asset (Cash); Increase equity (Rental Revenue)

(g) Decrease asset (Cash), Decrease equity (Rent Expense)

(h) Increase asset (Office Supplies);Decrease asset (Cash)

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Step by Step Solution

Step-by-Step-SolutionStep 1: Explanation on Accounting Equation

As per the accounting equation general rule, the left side of the equation represents the assets, and the right side of the equation represents liabilities and equity.

Step 2: Explanation on Asset, Liability and Equity

Assets are resources that are owned by the business.

Liabilities are the debts or obligations of the entity.

Equity represents the claim of the owners on the assets of the entity.

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