Financial Accounting: An Integrated Statements Approach, 2nd Edition

(Greg DeLong) #1
Chapter 2 Basic Accounting Concepts 77

d. Stockholders’ equity, as of December 31, 2006, assuming that assets increased by $125,000
and liabilities decreased by $65,000 during 2006.
e. Net income (or net loss) during 2006, assuming that as of December 31, 2006, assets were
$425,000, liabilities were $105,000, and there were no dividends and no additional capital
stock was issued.

ForKroger Co., indicate whether the following transactions would (1) increase, (2) decrease, or
(3) have no effect on stockholders’ equity.

a. Purchased store equipment. f. Made cash sales to customers.
b. Paid dividends. g. Paid interest expense.
c. Paid store rent. h. Sold store equipment at a loss.
d. Borrowed money from the bank. i. Received interest income.
e. Paid creditors. j. Paid taxes.

Describe how the following business transactions affect the three elements of the accounting
equation.

a. Received cash for services performed. d. Issued capital stock for cash.
b. Borrowed cash at local bank. e. Purchased land for cash.
c. Paid for utilities used in the business.

A vacant lot acquired for $50,000, on which there is a balance owed of $30,000, is sold for
$130,000 in cash. The seller pays the $30,000 owed. What is the effect of these transactions on the
total amount of the seller’s (1) assets, (2) liabilities, and (3) stockholders’ equity?

Indicate whether each of the following types of transactions will (a) increase stockholders’
equity or (b) decrease stockholders’ equity.


  1. Paid cash for rent expense.

  2. Paid cash dividends.

  3. Received cash for fees earned.

  4. Issued capital stock for cash.

  5. Paid cash for utilities expense.


Salvo Delivery Service had the following selected transactions during February:


  1. Received cash from issuance of capital stock, $35,000.

  2. Received cash for providing delivery services, $15,000.

  3. Paid creditors, $1,800.

  4. Billed customers for delivery services, $11,250.

  5. Paid advertising expense, $750.

  6. Purchased supplies for cash, $800.

  7. Paid rent for February, $2,000.

  8. Received cash from customers on account, $6,740.

  9. Determined that the cost of supplies on hand was $135; therefore, $665 of supplies had
    been used during the month.

  10. Paid dividends, $1,000.


Exercise 2-6


Effect of transactions on
stockholders’ equity


Goals2, 4


Exercise 2-7


Effect of transactions on
accounting equation


Goals1, 3, 4, 5


Exercise 2-8


Effect of transactions on
accounting equation


Goals1, 2, 4


(1) Assets increase $50,000


Exercise 2-9


Effect of transactions on
stockholders’ equity


Goals2, 4


Exercise 2-10


Transactions


Goals1, 2, 4

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