Ignoring dollar amounts, explain what transactions 4 and 5 have in common, and how they differ. Ignoring dollar amounts, explain what transactions 7 and 8 have in common, and how they differ. Ignoring dollar amounts, explain what transactions 4 and 11 have in common, and how they differ.

Challenge Exercise 1

            Expands on: E1-7

            LO:  4

Wunderkind Photography entered into the following transactions during February 2022.

1. Stockholders invested $5,000 in the business.
2. Bought photography equipment for a cash payment of $1,000.
3. Bought more photography equipment by signing a $500 note payable.
4. Performed photography services for $400 cash.
5. Performed photography services, and billed the customer $900 on account.
6. Collected $900 from the customer in transaction 5.
7. Paid for February developing and printing, $150.
8. Advertised the business in the Platteville Journal. The $100 cost will be billed to Wunderkind.
9. Paid the advertising bill from transaction 8.
10. Paid $200 for photography supplies.
11. Received $300 cash advance payment from a customer for a photography job to be performed in April.
12. Paid $250 dividend to the stockholders.

Instructions:

1. Indicate whether each transaction increases or decreases assets, liabilities, or stockholders’ equity. As an example, item one would be: increase assets and increase stockholders’ equity.
2. Ignoring dollar amounts, explain what transactions 4 and 5 have in common, and how they differ.
3. Ignoring dollar amounts, explain what transactions 7 and 8 have in common, and how they differ.
4. Ignoring dollar amounts, explain what transactions 4 and 11 have in common, and how they differ.

Challenge Exercise 2

            Expands on: E1-10

            LO:  4

The total assets and liabilities of Robot Company at January 1 and December 31, 2022 are presented here.

                                                                                    January 1                   December 31

Assets                                                                         $76,000                       $112,000

Liabilities                                                                        26,000                           28,800

Instructions:

1. Assume dividends of $10,800 were paid and no additional stock was issued during the year. Revenues were $110,000. Compute (a) net income, and (b) expenses.
2. Assume additional stock was issued for $4,800 and no dividends were paid during the year. Expenses were $42,000. Compute (a) net income, and (b) revenues.
3. Assume additional stock was issued for $62,000 and dividends of $15,600 were paid during the year. Compute net income.
4. Assume additional stock was issued for $6,000, and net income was $51,000. Compute dividends paid.

Challenge Exercise 3

            Expands on: E1-12, E1-14

            LO:  5

Seattle Service had the following financial information at the end of 2022:

                                                            1/1/22              2022                12/31/22

Accounts Payable                                                                               $15,000

Accounts Receivable                                                                            20,000

Advertising Expense                                                   $ 1,000

Cash                                                                                                     11,000

Common Stock                                                                                    15,000

Dividends                                                                       9,000

Equipment                                                                                             33,000

Notes Payable                                                                                      20,000

Rent Expense                                                                3,500

Retained Earnings                              $6,000

Salaries and Wages Expense                                    16,000

Service Revenue                                                        40,000

Utilities Expense                                                            2,500

Instructions:

Prepare a 2022 income statement, 2022 statement of retained earnings, and a 12/31/22 balance sheet for Seattle Service.