Question

Selected transactions for Thyme Advertising Company, Inc. are listed here Describe the effect of each transaction on assets, liabilities, and stockholders’ equity.
1. Issued common stock to investors in exchange for cash received from investors. select the effect on an account item
2. Paid monthly rent. select the effect on an account item
3. Received cash from customers when service was performed. select the effect on an account item
4. Billed customers for services performed. select the effect on an account item
5. Paid dividend to stockholders. select the effect on an account item
6. Incurred advertising expense on account. select the effect on an account item
7. Received cash from customers billed in (4). select the effect on an account item
8. Purchased additional equipment for cash. select the effect on an account item
9. Purchased equipment on account.

Answer 1

Answer:

1. Increased assets (Cash) – Increased stockholders’ equity (Common Stock)

2. Decreased stockholders’ equity (Rent Expense) - Decreased assets (Cash)

3. Increased assets (Cash) – Increased stockholders’ equity (Service revenue)

4. Increased assets (Accounts receivable) – Increased stockholders’ equity (Service revenue)

5. Decreased liabilities (Cash Dividends Payable) – Decreased assets (Cash)

6. Decreased stockholders’ equity (Advertising Expense) - Increased liabilities (Accounts payable)

7. Increased assets (Cash) – Decreased assets (Accounts receivable)

8. Increased assets (Equipment) – Decreased assets (Cash)

9. Increased assets (Equipment) – Increased liabilities (Accounts payable)

Explanation:

Accounting Equation Formula:

Assets = Liabilities + Owner's Equity

This equation tells us that Assets are increased by Debits and decreased by Credits, instead, Liabilities and Stockholders´ Equity decreased by Debits and increased by Credits. In the answer, Debits are represented by the left side of the note, and Credits by the right side of the note.