Question Completion:
Show the effect of each transaction on the accounting equation.
Answer:
Sunland Company
1. Stockholders' investment in the business = $38,000
Assets (Cash + $38,000) = Liabilities + Equity (Common Stock + $38,000)
2. Office Computers purchased on account from Ladd = $34,000
Assets (Equipment + $34,000) = Liabilities (Accounts Payable + $34,000) + Equity
3. Cash payment for May Rent = $2,200
Assets (Cash -$2,200) = Liabilities + Equity (Retained Earnings - $2,200)
4. Computer services performed on account = $19,500
Assets (Accounts Receivable + $19,500) = Liabilities + Equity (Retained Earnings + $19,500)
5. Computer services performed for cash = $6,400
Assets (Cash + $6,400) = Liabilities + Equity (Retained Earnings + $6,400)
6. Utilities for May paid $8,200
Assets (Cash - $8,200) = Liabilities + Equity (Retained Earnings - $8,200)
7. Payment to Ladd = $34,000
Assets (Cash - $34,000) = Liabilities (Accounts Payable - $34,000) + Equity
8. Advertising expense on account = $3,300
Assets (Cash - $3,300) = Liabilities + Equity (Retained Earnings - $3,300)
9. Cash received from customers = $12,700
Assets (Cash + $12,700, Accounts Receivable -$12,700) = Liabilities + Equity
Explanation:
a) Data and Calculations:
Transactions entered into during May 2022:
1. Stockholders' investment in the business = $38,000
2. Office Computers purchased on account from Ladd = $34,000
3. Cash payment for May Rent = $2,200
4. Computer services performed on account = $19,500
5. Computer services performed for cash = $6,400
6. Utilities for May paid $8,200
7. Payment to Ladd = $34,000
8. Advertising expense on account = $3,300
9. Cash received from customers = $12,700
b) The accounting equation is the basis of the double-entry system of accounting practice. It states that at every point in time and with every transaction, the assets are equal to the liabilities plus owners' equity. This implies that the assets are owed by creditors and stockholders. Therefore, every business transaction by Sunland Company has a double-entry effect on the assets, liabilities, and owners' equity.
