Chapter 3, Problem 8E

Determining Accounting Equation Effects and Net Income

The following transactions occurred during a recent year:

1. a. Paid wages of $1,000 for the current period (example).
2. b. Borrowed $5,000 cash from local bank using a short-term note.
3. c. Purchased $2,000 of equipment on credit.
4. d. Earned $400 of sales revenue; collected cash.
5. e. Received $800 of utilities services, on credit.
6. f. Earned $1,700 of service revenue, on credit.
7. g. Paid $300 cash on account to a supplier.
8. h. Incurred $70 of travel expenses; paid cash.
9. i. Earned $400 of service revenue; collected half in cash, with balance on credit.
10. j. Collected $100 cash from customers on account.
11. k. Incurred $300 of advertising costs; paid half in cash, with balance on credit.

Required:

For each of the transactions, complete the table below, indicating the account, amount, and direction of the effect (+ for increase and − for decrease) of each transaction under the accrual basis. Write NE if there is no effect. Include revenues and expenses as subcategories of stockholders’ equity, as shown for the first transaction, which is provided as an example. Also, determine the company’s preliminary net income.