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Lesson 1: Introduction to Accounting and Business
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Practice Problems
Problem 1
Determine the effects of the following transactions on the accounting equation:
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Issued 20,000 shares of common stock in exchange for $100,000 worth of land.
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Purchased office supplies for cash for $800.
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Purchased for $15,000 a car to be used in business. Paid $5,000 in cash and signed a note payable, promising to pay next year.
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Purchased office equipment on credit for $2,000.
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Paid $2,400 for employee wages.
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Rendered services to clients on credit for $18,000.
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Rendered services to clients and received cash for $42,000.
Click here to find out the answer to Problem 1.
Problem 2
Use the following account balances for the month of May, ending May 31, and determine the following:
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the net income for May,
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the statement of retained earnings as of May 31, and
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the total assets, liabilities, and stockholders' equity as of May 31.
Assets | Account balances | Liabilities and stockholders' equity | Account balances |
---|---|---|---|
Cash | $15,000 | Building | $120,000 |
Accounts receivable (A/R) | $4,000 | Accounts payable (A/P) | $60,000 |
Supplies | $3,000 | Salaries payable | $1,000 |
Equipment | $30,000 | Interest payable | $10,000 |
Land | $5,000 | Capital stock | $51,500 |
Dividends | $26,000 | Utilities expense | $1,000 |
Fees earned | $85,000 | Supplies expense | $500 |
Salary expense | $15,000 | Retained earnings, May 1 | $14,000 |
Advertising expense | $2,000 |
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|
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|
Retained earnings (balance as of May 31) | = Retained earnings (balance as of May 1) |
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| + net income |
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|
net loss
|
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|
dividends
|
Retained earnings (balance as of May 31) | = $14,000 + $66,500 - $26,000 |
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| = $54,500 |
Total assets | = cash + A/R + supplies + equipment + land + building |
= $15,000 + $4,000 + $3,000 + $30,000 + $5,000 + $120,000 | |
= $177,000 |
Total liabilities | = A/P + salaries payable + interest payable |
= $60,000 + $1,000 + $10,000 | |
= $71,000 |
Total stockholders' equity | = capital stock + retained earnings |
= $51,500 + $54,500 | |
= $106,000 |
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