Question

Sheridan Company, a computer services company, entered into these transactions during May 2017, its first month of operations.

Answer 1

Answer:

                  Sheridan Company

NUMBER    ASSET     LIABILITY      EQUITY   EXPLANATION

                       $                   $                  $

1                  35,000                              35,000           The issue of stock for cash would involve increase in asset and an increase in equity component of the company.

2                 32,900           32,900                                 The purchase of equipment on credit would increase the asset of the company and also increase the liability as it was purchased on account.

3                   -3600                                     -3600             Payment of rent which is an expense would involve an outflow of cash thus reducing the cash component in asset and reduce the retained earnings of the company that would be recorded under stockholders' equity

4                    18100                                       18100              The inflow from computer services is a revenue to the company and under asset would increase the account receivable while on the equity side it would also increase the retained earnings of the company

5                    5900                                       5900              The inflow from computer services is a revenue to the company and under asset would increase the cash component since cash was paid while on the equity side it would also increase the retained earnings of the company

6                   -7100                                        -7100             Payment for energy which is an expense would involve an outflow of cash thus reducing the cash component in asset and reduce the retained earnings of the company that would be recorded under stockholders' equity

7                  -32,900          -32,900                                 The payment for the equipment would reduce the cash component and also reduce the liability component as the debt would have cleared off

8                                           3600               -3600             Advertising rent incurred on account would increase the liability component and also reduce the retained earnings under shareholders equity  

9                   11900            -11900                                       Being increase in cash from payment of services and reducing the liability owed    

Explanation:

Assets = Cash, Equipment, Account receivable

Liability = Account payable

Stockholders' equity = common stock, retained earnings (revenue, expenses)