Question

During 2022, Novak Corp. entered into the following transactions. 1. Borrowed $61,000 by issuing bonds. 2. Paid $9,350 cash dividend to stockholders. 3. Received $18,800 cash from a previously billed customer for services performed.4. Purchased supplies on account for $4,800. Using the following tabular analysis, show the effect of each transaction on the accounting equation. (If a transaction causes a decrease in Assets, Liabilities or Stockholders' Equity, place a negative sign (or parentheses) in front of the amount entered for the particular Asset, Liability or Equity item that was reduced. See Illustration 3-4 for example.)

Answer 1

Transactions will be recorded as follows;

1. Borrowed by issuing bonds.

Dr Cash $61,000 (increase assets )

Cr Bonds Payable $61,000 (increase liabilities)

2. Paid cash dividend to stockholders.

Dr Retained Earnings $9,350 (decrease equity)

Cr Cash $9,350 (decrease assets)

3. Received cash from a previously billed customer for services provided.

Dr Cash $18,800 (increase assets)

Cr Accounts Receivable $18,800 (decrease assets)

4. Purchased supplies on account.

Dr Supplies $4,800 (increase assets)

Cr Accounts Payable $4,800 (increase liabilities)

Effects of above mentioned entries on Accounting Equation

Assets                                                                = Liabilities               + Equity

($61,000-$9,350+$18,800-$18,800+$4,800) = ($61,000+$4,800) + (-$9,350)

$56,450                                                             = $65,800                - $9,350

$56,450                                                             = $56,450