Question

The following transactions occurred during March 2018 for the Wainwright Corporation. The company owns and operates a wholesale warehouse.
Issued 56,000 shares of common stock in exchange for $560,000 in cash.
Purchased equipment at a cost of $92,000. $23,000 cash was paid and a note payable was signed for the balance owed.
Purchased inventory on account at a cost of $170,000. The company uses the perpetual inventory system.
Credit sales for the month totaled $250,000. The cost of the goods sold was $150,000.
Paid $7,500 in rent on the warehouse building for the month of March.
Paid $7,750 to an insurance company for fire and liability insurance for a one-year period beginning April 1, 2018.
Paid $150,000 on account for the merchandise purchased in 3.
Collected $112,500 from customers on account.
Recorded depreciation expense of $2,300 for the month on the equipment.

Required:
Analyze each transaction and show the effect of each on the accounting equation for a corporation. (Amounts to be deducted should be indicated by a minus sign. Enter the net change on the accounting equation.)

Answer 1

Answer:

                                                   Wainwright Corporation        

                       Analysis of Transactions Using Accounting Equation

       Asset ($)                                   =         Liabilities ($)          +           Equity ($)

1.      560,000                                                                                        560,000                                                                      

2.    69,000                                                   69,000    

3.    170,000                                                  170,000

4.    100,000                                                                                            100,000                                                                                

5.    -7500                                                                                                -7500

6.     0        

7.    -150,000                                                  -150,000

8.    0

9.   -2,300                                                                                                  -2,300                                                                                                                                                                      

Explanation:

Account equation is given by:

ASSET = LIABILITIES + EQUITY

For Asset,

Dr Increase /Cr Decrease

For Liabilities and equity

Cr Increase /Dr Decrease

For all transactions, there is a straight forward increase and decrease except for the following transactions:

Transaction 2 is net off of asset: Increase of $92,000 - decrease of $23,000.( $69,000)

Transaction 4 is net of sales($250,000) and cost of sales ($150,000).

Transaction 6 and 8 are zero because the transaction has equal figure for both increase and decrease in asset:

Transaction 4: Prepaid insurance- Increase in asset of $7,750 and cash-decrease in asset of same amount ($7,750).

Transaction 8: Increase in asset ($112,500) cash and decrease in asset ($112,500) receivable.