Question

Nature of Transactions Kristoff Walker operates his own catering service. Summary financial data for February are presented in equation form as follows. Each line designated by a number indicates the effect of a transaction on the equation. Each increase and decrease in owner's equity, except transaction (5), affects net income.
Assets = Liabilities + Owner's Equity - Kristoff Walker,
Cash + Supplies + Land = Accounts + Kristoff Walker, Drawing
Payable Capital
Bal. 27,600 3,600 69,000 7,500 92,700
1. +32,300 +32,300
2. -13,800 +13,800
3. -24,000 -24,000
4. +1,400 +1,400
5. -1,800 -1,800
6. -6,600 -6,600
7. -2,800 -2,800
Bal. 13,700 2,200 82,800 2,300 92,700 -1,800
Fill in the blank options for questions of a:
-Recognition of cost of supplies used
-Withdrawal of cash by owner
-Purchase of supplies on account
-Purchase of land for cash
-Payment of cash to creditors
-Payment of cash for expenses
-Provided catering service for cash
A. Select the description for transaction 1
Select the description for transaction 2
Select the description for transaction 3
Select the description for transaction 4
Select the description for transaction 5
Select the description for transaction 6
Select the description for transaction 7
B. What is the amount of the net decrease in cash during the month?
C. What is the amount of the net increase in owner's equity during the month?
D. What is the amount of the net income for the month?
E. How much of the net income for the month was retained in the business?

Answer 1

Answer:

A. Description for :

Transaction 1 - Provided catering service for cash

Transaction 2 - Purchase of land for cash

Transaction 3 - Payment of cash for expenses

Transaction 4 - Purchase of supplies on account

Transaction 5 - Withdrawal of cash by owner

Transaction 6 - Payment of cash to creditors

Transaction 7 - Recognition of cost of supplies used

B. The amount of the net decrease in cash during the month = 13,900

C. The amount of the net increase in owner's equity during the month = 3700

D. The amount of the net income for the month = 5500

E. The net income for the month was retained in the business = 3700

Explanation:

a)

Description for :

Transaction 1 - Provided catering service for cash

Transaction 2 - Purchase of land for cash

Transaction 3 - Payment of cash for expenses

Transaction 4 - Purchase of supplies on account

Transaction 5 - Withdrawal of cash by owner

Transaction 6 - Payment of cash to creditors

Transaction 7 - Recognition of cost of supplies used

b.)

Net decrease = Closing Balance - opening Balance

                        = 27,600 - 13,700

                        = 13,900

⇒The amount of the net decrease in cash during the month = 13,900

c.)

Net increase in owner's equity = ( Opening capital balance - Drawing + Income earned during the year - Expenses incurred during the year ) - Opening capital

⇒Net increase = ( 92,700 - 1800 + 32,300 - 26,800 ) - 92,700

                         = 96,400 - 92,700 = 3700

⇒The amount of the net increase in owner's equity during the month = 3700

d.)

Amount of the net income for the month = Total Income - Expenses

                                                                    = 32,300 - 26,800

                                                                     = 5500

⇒Amount of the net income for the month = 5500

e.)

Net income for the month was retained in the business = Net Income - Drawings

⇒Net income was retained in the business =  5500 - 1800

                                                                         = 3700

⇒Net income for the month was retained in the business = 3700