Q40PGA - Horngren'S Financial And Managerial Accounting

Question

Using the accounting equation for transaction analysis Meg McKinney opened a public relations firm called Solid Gold on August 1, 2018. The following amounts summarize her business on August 31, 2018: During September 2018, the business completed the following transactions: a. Received contribution of \(17,000 cash from Meg McKinney in exchange for common stock. b. Performed service for a client and received cash of \)800. c. Paid off the beginning balance of accounts payable. d. Purchased office supplies from OfficeMax on account, \(1,200. e. Collected cash from a customer on account, \)2,000. f. Cash dividends of \(1,600 were paid to stockholders. g. Consulted for a new band and billed the client for services rendered, \)4,500. h. Recorded the following business expenses for the month: Paid office rent: \(1,000. Paid advertising: \)500. Analyze the effects of the transactions on the account   ting equation of Solid Gold using the format presented in Exhibit 1-6

Step-by-Step Solution

Answer

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

	Assets	=	Liabilities	+	Equity
Contributed Capital	+	Retained Earnings
Cash	+	Accounts Receivable	+	Office Supplies	+	Land	Accounts Payable	Common Stock	-	Dividends	+	Service Revenue	-	Rent Expense	-	Advertising Expense
Bal.	$1,900	+	$3,200	+	$0	+	$15,000	=	$5,000	+	$11,900			+	$3,200
a	+17,000										+17,000
Bal.	$18,900	+	$3,200	+	$0	+	$15,000	=	$5,000	+	$28,900			+	$3,200
b	+800														+800
Bal.	$19,700	+	$3,200	+	$0	+	$15,000	=	$5,000	+	$28,900			+	$4,000
c	-5,000								-5000
Bal.	$14,700	+	$3,200	+	$0	+	$15,000	=	$0	+	$28,900			+	$4,000
d					+1,200				+1,200
Bal.	$14,700	+	$3,200	+	$1,200	+	$15,000	=	$1,200	+	$28,900			+	$4,000
e	+2000		-2000
Bal.	$16,700	+	$1,200	+	$1,200	+	$15,000	=	$1,200	+	$28,900			+	$4,000
f	-1600												-1,600
Bal.	$15,100	+	$1,200	+	$1,200	+	$15,000	=	$1,200	+	$28,900	-	$1,600	+	$4,000
g			+4,500												+4,500
Bal.	$15,100	+	$5,700	+	$1,200	+	$15,000	=	$1,200	+	$28,900	-	$1,600	+	$8,500
h	-1,500																-1000		-500
Bal.	$13,600	+	$5,700	+	$1,200	+	$15,000	=	$1,200	+	$28,900	-	$1,600	+	$8,500	-	$1,000	-	$500
	$35,500		$35,500

Step 1: Explanation on Transaction Analysis

Trasaction analysis helps in analyzing the effect of the transaction on the accounting equation.

Step 2: Explanation on Accounting Equation

As per the accounting equation,both side of the accounting equation should be equal. .