Question

Describe the effect of each transaction on assets, liabilities, and stockholders' equity.

Answer 1

Answer:

Issued Common Stock to Investors in exchange for Cash received from investors

Stockholders Equity = Increase

Assets = Increase

Liabilities = No Effect

Paid Monthly Rent

Assets = Decrease

Stockholders equity = Decrease

Liabilities = No Effect

Received cash from customers when service is performed

Assets = Increase

Stockholders Equity = Increase

Liabilities = No Effect

Billed Customers when service is performed

Assets = Increase

Liabilities = No Effect

Stockholders Equity = Increase

Explanation:

Issued Common Stock to Investors in exchange for Cash received from investors

Stockholders Equity increase due to increase in issue of additional common stock.

Assets increase due to inflow of asset of Cash resulting from the issue.

Paid Monthly Rent

Stockholders equity decrease due to increase in an expense item (Rent) which decreases profits attributable to stockholders.

Assets decrease due to outflow of economic benefits in form of cash.

Received cash from customers when service is performed

Shareholders Equity increase increase due to inflow of economic benefits in form of revenue, which would consequently increase profit attributable to shareholders.

Assets are increasing due to inflow of economic benefits in form of cash.

Billed Customers when service is performed

Assets are increasing due to increase of future economic benefit in form of Accounts Receivable.

Shareholders Equity increase increase due to inflow of economic benefits in form of revenue, which would consequently increase profit attributable to shareholders.