Accounting Equation-Examples and Problems

Accounting Equation-Example 1 Kieso P.
20
Transactions made by Virmari & Co., a public accounting firm, for the month of August are
shown below. Prepare a tabular analysis which shows the effects of these transactions on
the expanded accounting equation.
1. The owner invested $25,000 cash in the business.
2. The company purchased $7,000 of office equipment on credit.
3. The company received $8,000 cash in exchange for services performed.
4. The company paid $850 for this month’s rent.
5. The owner withdrew $1,000 cash for personal use.
Solution
Example 2 Kieso P.26

Joan Robinson opens her own law office on July 1. During the first month of operation,
the following transactions occurred.
1. Joan invested $11,000 in cash in the law practice.
2. Paid $800 for July rent on office space.
3. Purchased office equipment on account $3,000.
4. Provided legal services to clients for cash $1,500.
5. Borrowed $700 cash from a bank on a note payable.
6. Performed legal services for client on account $2,000.
7. Paid monthly expenses: salaries $500, utilities $300, and telephone $100.
8. Joan withdraws $1,000 cash for personal use.
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Instructions: Prepare a tabular summary of the transactions (expanded accounting equation)
Accounting Equation - Problems

P1-1B Solki’s Repair Shop was started on May 1 by Solki Lee. A summary of May transactions
is presented below.
1. Invested $10,000 cash to start the repair shop.
2. Purchased equipment for $5,000 cash.
3. Paid $400 cash for May offi ce rent.
4. Paid $500 cash for supplies.
5. Incurred $250 of advertising costs in the Beacon News on account.
6. Received $6,100 in cash from customers for repair service.
7. Withdrew $1,000 cash for personal use.
8. Paid part-time employee salaries $2,000.
9. Paid utility bills $170.
10. Performed repair services worth $750 on account.
11. Collected cash of $120 for services billed in transaction (10).
Instructions
(a) Prepare a tabular analysis of the transactions, using the following column headings:
Cash, Accounts Receivable, Supplies, Equipment, Accounts Payable, Owner’s Capital,
Owner’s Drawings, Revenues, and Expenses.
(b) From an analysis of the owner’s equity columns, compute the net income or net loss
for May.
P1-2B Peter Nimmer opened a veterinary business in Nashville, Tennessee, on August 1,
2014. On August 31, the balance sheet showed Cash $9,000, Accounts Receivable $1,700
Supplies $600, Equipment $6,000, Accounts Payable $3,600, and Owner’s Capital $13,700.
During September, the following transactions occurred.
1. Paid $2,900 cash on accounts payable.
2. Collected $1,300 of accounts receivable.
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3. Purchased additional equipment for $2,100, paying $800 in cash and the balance on
account.
4. Recognized revenue of $7,800, of which $2,500 is received in cash and the balance is
due in October.
5. Withdrew $1,100 cash for personal use.
6. Paid salaries $1,700, rent for September $900, and advertising expense $450.
7. Incurred utilities expense for month on account $170.
8. Received $10,000 from Capital Bank (money borrowed on a note payable).
Instructions
(a) Prepare a tabular analysis of the September transactions beginning with August 31
balances.
(b) Prepare an income statement for September, an owner’s equity statement for
September, and a balance sheet at September 30.
P1-4B Dennis Luljak started his own delivery service, Luljak Deliveries, on June 1, 2014.
The following transactions occurred during the month of June.
June 1 Dennis invested $10,000 cash in the business.
2 Purchased a used van for deliveries for $12,000. Dennis paid $2,000 cash and
signed a note payable for the remaining balance.
3 Paid $500 for office rent for the month.
5 Performed $4,400 of services on account.
9 Withdrew $200 cash for personal use.
12 Purchased supplies for $150 on account.
15 Received a cash payment of $1,250 for services performed on June 5.
17 Purchased gasoline for $200 on account.
20 Received a cash payment of $1,300 for services performed.
23 Made a cash payment of $600 on the note payable.
26 Paid $250 for utilities.
29 Paid for the gasoline purchased on account on June 17.
30 Paid $1,000 for employee salaries.
Instructions
(a) Show the effects of the previous transactions on the accounting equation using the
following format.
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Accounting Equation-Example 1 Kieso P.

Example 2 Kieso P.26

Accounting Equation - Problems

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