Answer:
Wainwright Corporation
ASSETS = Liabilities + Paid-in Capital + Retained Earnings
1
. Assets (Cash) increase $30,000 = Liabilities + Paid-in Capital increase $30,000 + Retained Earnings
2
. Assets (Equipment) increase $40,000 and (Cash) decrease -$10,000 = Liabilities increase $30,000 + Paid-in Capital + Retained Earnings
3
. Assets (Inventory) increase $90,000 = Liabilities (Notes Payable) increase $90,000 + Paid-in Capital + Retained Earnings
4
. Assets (Inventory) decrease -$70,000 + (Accounts Receivable) increase $120,000 = Liabilities + Paid-in Capital + Retained Earnings increase $50,000
5
. Assets (Cash) decrease -$5,000 + (Insurance Prepaid) increase $5,000= Liabilities + Paid-in Capital + Retained Earnings
6
. Assets (Cash) decrease -$6,000 = Liabilities + Paid-in Capital + Retained Earnings -$6,000
7. Assets (Cash) decrease -$70,000 = Liabilities (Accounts Payable) decrease -$70,000 = Paid-in Capital + Retained Earnings
8
. Assets (Cash) increase $55,000 and decrease (Accounts Receivable) -$55,000 = Liabilities + Paid-in Capital + Retained Earnings
9. Assets (Equipment) decrease -$1,000 = Liabilities + Paid-in Capital + Retained Earnings decrease -$1,000.
Explanation:
a) The accounting equation states that Assets are equal to Liabilities Plus Paid-in Capital Plus Retained Earnings. This equation is very important in accounting as it keeps the two sides of the balance sheet in balance. The equation shows that assets are funded by liabilities or equity or profits from operation.
b) When common stock is issued for cash, Assets increase and Paid-in Capital increase.
c) The purchase of equipment increases Assets by $40,000 and decreases Assets by $10,000 (for cash payment) and increases Liabilities by $30,000 as note payable.
d) Assets increase by $90,000 with inventory purchased on account and Liabilities (Accounts Receivable) increases by the same amount.
e) Payments for Rent for March will decrease Assets (Cash) and decrease Retained Earnings.
f) The Insurance cost of $6,000 paid in advance will decrease Assets (Cash) and increase Assets (Insurance Prepaid) without affecting the other side of the equation.
g) Depreciation expense also decreases Assets (Equipment) and decreases the Retained Earnings by $1,000 respectively.
