Chapter 3, Problem 3.5E

To determine

Introduction: Each financial transaction or economic event will affect either assets, liabilities, or owners’ equity. Thus, the basis for recording these transactions in the accounting system depends on the accounting equation. The accounting equation is:

  $\text{Assets}=\text{Liabilities}+\text{Stockholder's}\text{Equity}$

The Preparation of summary showing the effect of each transaction on the accounting equation.

Answer to Problem 3.5E

According to Accounting equation

  $\text{Assets}\text{=}\text{Liabilities}\text{+}\text{Stockholder's}\text{Equity}$

  $\begin{array}{c}\text{Total}\text{Assets}=(\$50,000+\$4,240+\$1,365+\$640-\$4,600)\\ =\$51,645\end{array}$

  $\begin{array}{c}\text{Liabilities}\text{and}\text{Stockholder's}\text{equity}=(\$865+\$2,500+\$50,000-\$1,720)\\ =\$51,645\end{array}$

Explanation of Solution

	Assets =					Liabilities +		Stockholders’ equity
Date/Balance	Cash	Receivables	Supplies	Land	Equipment	Accounts payable	Notes payable	Capital Stock	Retained earnings
1		$1,530							$1,530
Bal.		$1,530							$1,530
2			$1,365			$1,365
Bal.		$1,530	$1,365			$1,365			$1,530
3	$750								$750
Bal.	$750	$1,530	$1,365			$1,365			$2,280
4	-$4,240				$4,240
Bal.	-$3,490	$1,530	$1,365		$4,240	$1,365			$2,280
5	$2,500						$2,500
Bal.	-$990	$1,530	$1,365		$4,240	$1,365	$2,500		$2,280
6	$890	-$890
Bal.	-$100	$640	$1,365		$4,240	$1,365	$2,500		$2,280
7				$50,000				$50,000
Bal.	-$100	$640	$1,365	$50,000	$4,240	$1,365	$2,500	$50,000	$2,280
8	-$4,000								-$4,000
Bal.	-$4,100	$640	$1,365	$50,000	$4,240	$1,365	$2,500	$50,000	-$1,720
9	-$500					-$500
Bal.	($4,600)	$640	$1,365	$50,000	$4,240	$865	$2,500	$50,000	($1,720)

Total Assets = $51,645Total Liabilities and capital = $51,645