Chapter 1, Problem 1.10SE

Using the accounting equation to analyze transactions

Elaine’s Inflatables earns service revenue by providing party planning services and inflatable playscapes. Elaine’s Inflatables is organized as a corporation. During the past month, Elaine’s Inflatables had the following transactions:

1. a. Investors contributed $10,000 to the corporation in exchange for common stock.
2. b. Purchased equipment for $5,000 on account.
3. c. Paid $400 for office supplies.
4. d. Earned and received $2,500 cash for service revenue.
5. e. Paid $400 for wages to employees.
6. f. Cash dividends of $1,000 were paid to stockholders.
7. g. Earned $1,000 for services provided. Customer has not yet paid.
8. h. Paid $1,000 for rent.
9. i. Received a bill for $250 for the monthly utilities. The bill has not yet been paid.

Indicate the effects of the business transactions on the accounting equation for Elaine’s Inflatables. Transaction (a) is answered as a guide.

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