Chapter 3, Problem 9E

Determining Accounting Equation Effects and Net Income

Wolverine World Wide, Inc., manufactures military, work, sport, and casual footwear and leather accessories under a variety of brand names, such as Caterpillar, Hush Puppies, Wolverine, and Steve Madden. The following transactions occurred during a recent month.

1. a. Made cash sales of $49,000 (example).
2. b. Purchased $3,000 of additional supplies on account.
3. c. Borrowed $58,000 on long-term notes.
4. d. Purchased $18,600 in additional equipment, paying in cash.
5. e. Incurred $27,000 in selling expenses, paying two-thirds in cash and owing the rest on account.
6. f. Paid $4,700 in rent for this month, and $4,700 for next month.

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.