Chapter 2, Problem 2.1E

Transaction analysis

• LO2–1

The following transactions occurred during March 2018 for the Wainwright Corporation. The company owns and operates a wholesale warehouse.

1. Issued 30,000 shares of common stock in exchange for $300,000 in cash.

2. Purchased equipment at a cost of $40,000. $10,000 cash was paid and a note payable was signed for the balance owed.

3. Purchased inventory on account at a cost of $90,000. The company uses the perpetual inventory system.

4. Credit sales for the month totaled $120,000. The cost of the goods sold was $70,000.

5. Paid $5,000 in rent on the warehouse building for the month of March.

6. Paid $6,000 to an insurance company for fire and liability insurance for a one-year period beginning April 1, 2018.

7. Paid $70,000 on account for the merchandise purchased in 3.

8. Collected $55,000 from customers on account.

9. Recorded depreciation expense of $1,000 for the month on the equipment.

Required:

Analyze each transaction and show the effect of each on the accounting equation for a corporation.

Example:

1. Assets + 300,000(cash) = Liabilities + Paid-In Capital + Retained Earnings + 300,000 (common stock)