Question

During Year 1, Ashkar Company ordered a machine on January 1 at an invoice price of $28,000. On the date of delivery, January 2, the company paid $6,000 on the machine, with the balance on credit at 10 percent interest due in six months. On January 3, it paid $1,400 for freight on the machine. On January 5, Ashkar paid installation costs relating to the machine amounting to $2,300. On July 1, the company paid the balance due on the machine plus the interest. On December 31 (the end of the accounting period), Ashkar recorded depreciation on the machine using the straight-line method with an estimated useful life of 10 years and an estimated residual value of $4,000.
Required:
Indicate the effects (accounts, amounts, and or- of each transaction (on January 1, 2, 3, and 5 and July 1) on the accounting equation.

Answer 1

Explanation:

Date           Assets = Liabilities +       Stockholder's Equity

January 1 No effect          No effect   No effect  

January 2 Cash  $28,000   Note payable          $22,000    

Equipment               -$6,000      

January 3 Cash   $1,400      

Equipment                -$1,400      

January 5 Cash    $2,300      

Equipment                  -$2,300      

July 1 Cash        $23,100  Note payable -$22,000  Interest expense        $1,100

( July 1 cash = balance due + interest

                     = $22,000 + ($22,000*10%*6/12)

                      = $23,100 )