Chapter 02 – Investing and Financing Decisions and the Accounting System
2-21
HANDOUT 2 – 1 SOLUTION
ANALYZING TRANSACTIONS
Analyze each of the following transactions of World Wide Webster by performing each of the following
steps. Then, use the chart on the following page to (1) keep track of the amount in each account and (2)
ensure the accounting equation is in balance.
(a) Stockholder invests $10,000 into the business in exchange for 10,000 shares of $1 par value common
stock.
1.
Decide if a transaction took place.
Yes – received cash and gave stock.
2.
Identify the accounts affected.
Cash and Common Stock
(b) Borrow $15,000 signing a note payable to the bank that is due in three months.
1.
Decide if a transaction took place.
Yes – received cash and gave a short-term note payable.
2.
Identify the accounts affected.
Cash and Short-Term Notes Payable
(c) Acquire a $15,000 truck and $5,000 worth of equipment.
1.
Decide if a transaction took place.
Yes – paid cash and received truck and equipment.
2.
Identify the accounts affected.
Cash and Equipment
3.
Classify each account affected.
Cash is an Asset (A) and Equipment is an Asset (A)
4.
Identify direction and amount.
Cash (A) – $20,000 and Equipment (A) + $20,000
Chapter 02 – Investing and Financing Decisions and the Accounting System
2-22
HANDOUT 2 – 1 SOLUTION, continued
(d) Purchase $300 worth of supplies from a vendor on credit. (“On credit,” or “on account,” means that
the company received the supplies now and will pay for them later.)
1.
Decide if a transaction took place.
Yes – received supplies and obligated to pay for them.
2.
Identify the accounts affected.
Supplies and Accounts Payable
Supplies is an Asset (A) and Accounts Payable is a
Liability (L)
4.
Identify direction and amount.
Supplies (A) + $300 and Accounts Payable (L) + $300.
5.
Yes – see below.
(e) Sign contract for first website design for $10,000.
1.
Decide if a transaction took place.
No – no exchange took place.
2.
Identify the accounts affected.
3.
Classify each account affected.
4.
Identify direction and amount.
5.
Ensure the accounting equation is in
balance.
Chart
Assets
=
Liabilities
+
Stockholders’
Equity
Ref.
Cash
+
Supplies
+
Equipment
=
Accounts
Payable
+
Short-
Term
Notes
Payable
+
Common Stock
(b)
+15,000
=
+15,000
Total
300
=
Liabilities $15,300 + Stockholders’ Equity
Chapter 02 – Investing and Financing Decisions and the Accounting System
2-23
HANDOUT 2 – 2
ANALYZING TRANSACTIONS
Analyze each of the following transactions of World Wide Webster by performing each of the following
(f) Company pays $300 on accounts payable to the vendor in (d).
1.
Decide if a transaction took place.
2.
Identify the accounts affected.
3.
Classify each account affected.
4.
Identify direction and amount.
5.
Ensure the accounting equation is in balance.
(g) Company pays for and receives $600 worth of supplies.
1.
Decide if a transaction took place.
2.
Identify the accounts affected.
3.
Classify each account affected.
4.
Identify direction and amount.
5.
Ensure the accounting equation is in balance.
(h) Company acquires and receives $1,000 worth of equipment.
1.
Decide if a transaction took place.
2.
Identify the accounts affected.
3.
Classify each account affected.
4.
Identify direction and amount.
5.
Ensure the accounting equation is in balance.
Chapter 02 – Investing and Financing Decisions and the Accounting System
2-24
HANDOUT 2 – 2, continued
(i) Order a $900 lawn mower, to be delivered next month.
1.
Decide if a transaction took place.
2.
Identify the accounts affected.
5.
Ensure the accounting equation is in balance.
Chart
Assets
=
Liabilities
+
Stockholders’
Equity
Ref.
Cash
+
Supplies
+
Equipment
=
Accounts
Payable
+
Short-
Term
Notes
Payable
+
Common
Stock
(a)
+10,000
=
+10,000
(b)
+15,000
=
+15,000
(g)
=
(h)
=
Total
=
=
Chapter 02 – Investing and Financing Decisions and the Accounting System
2-25
HANDOUT 2 – 2 SOLUTION
ANALYZING TRANSACTIONS
Analyze each of the following transactions of World Wide Webster by performing each of the following
steps. Then, use the chart on the following page to (1) keep track of the amount in each account and (2)
ensure the accounting equation is in balance.
(f) Company pays $300 on accounts payable to the vendor in (d).
1.
Decide if a transaction took place.
Yes – paid cash to reduce accounts payable.
2.
Identify the accounts affected.
Cash and Accounts Payable
4.
Identify direction and amount.
Cash (A) – $300 = Liabilities (L) – $300
(g) Company pays for and receives $600 worth of supplies.
1.
Decide if a transaction took place.
Yes – paid cash to purchase supplies.
2.
Identify the accounts affected.
Cash and Supplies
3.
Classify each account affected.
Cash is an Asset (A) and Supplies is an Asset
4.
Identify direction and amount.
Cash (A) – $600 and Supplies (A) + $600.
(h) Company acquires and receives $1,000 worth of equipment.
1.
Decide if a transaction took place.
Yes – paid cash to purchase equipment
2.
Identify the accounts affected.
Cash and Equipment
3.
Classify each account affected.
Cash is an Asset (A) and Equipment is an Asset (A)
4.
Identify direction and amount.
Cash (A) – $1,000 and Equipment (A) + $1,000
Chapter 02 – Investing and Financing Decisions and the Accounting System
2-26
HANDOUT 2 – 2 SOLUTION, continued
(i) Order a $900 computer, to be delivered next month.
1.
Decide if a transaction took place.
No exchange took place.
2.
Identify the accounts affected.
Ensure the accounting equation is
Chart
Assets
=
Liabilities
+
Stockholders’
Equity
Ref.
Cash
+
Supplies
+
Equipment
=
Accounts
Payable
+
Short-
Term
Notes
Payable
+
Common
Stock
(a)
+10,000
=
+10,000
(b)
+15,000
=
+15,000
(c)
–20,000
+20,000
=
(d)
=
(h)
Total
15,000
10,000
=
$25,000
Chapter 02 – Investing and Financing Decisions and the Accounting System
2-27
HANDOUT 2 – 3
THE DEBIT/CREDIT FRAMEWORK
Analyze each of the following transactions of World Wide Webster and prepare the journal entry required
to record the related transaction.
(a) Stockholder invests $10,000 into the business in exchange for 10,000 shares of $1 par value common
stock.
Debit and credit the accounts affected
(b) Borrow $15,000 signing a note payable to the bank that is due in three months.
Debit and credit the accounts affected
(c) Acquire a $15,000 truck and $5,000 worth of equipment.
Debit and credit the accounts affected
Chapter 02 – Investing and Financing Decisions and the Accounting System
2-28
HANDOUT 2 – 3, continued
(d) Purchase $300 worth of supplies from a vendor on credit. (“On credit,” or “on account,” means that
the company received the supplies now and will pay for them later.)
Debit and credit the accounts affected
(e) Sign contract for first website design for $10,000.
Debit and credit the accounts affected
Chapter 02 – Investing and Financing Decisions and the Accounting System
2-29
HANDOUT 2 – 3 SOLUTION
THE DEBIT/CREDIT FRAMEWORK
Analyze each of the following transactions of World Wide Webster and prepare the journal entry required
to record the related transaction.
(a) Stockholder invests $10,000 into the business in exchange for 10,000 shares of $1 par value common
stock.
Debit and credit the accounts affected
Common Stock (+SE)
10,000
Ensure the equation still balances and debits = credits
=
+
(b) Borrow $15,000 signing a note payable to the bank that is due in three months.
Debit and credit the accounts affected
(b)
Cash (+A)
15,000
(c) Acquire a $15,000 truck and $5,000 worth of equipment.
Debit and credit the accounts affected
(c)
Equipment (+A)
20,000
Cash (–A)
20,000
=
+
Equipment
+20,000
Chapter 02 – Investing and Financing Decisions and the Accounting System
2-30
HANDOUT 2 – 3 SOLUTION, continued
(d) Purchase $300 worth of supplies from a vendor on credit. (“On credit,” or “on account,” means that
the company received the supplies now and will pay for them later.)
Debit and credit the accounts affected
(d)
Supplies (+A)
300
Accounts Payable (+A)
300
Chapter 02 – Investing and Financing Decisions and the Accounting System
2-31
HANDOUT 2 – 4
THE DEBIT/CREDIT FRAMEWORK
Analyze each of the following transactions of World Wide Webster and prepare the journal entry required
to record the related transaction.
(f) Company pays $300 on accounts payable to the vendor in (d).
Debit and credit the accounts affected
Ensure the equation still balances and debits = credits
(g) Company pays for and receives $600 worth of supplies.
Debit and credit the accounts affected
Ensure the equation still balances and debits = credits
(h) Company acquires and receives $1,000 worth of equipment.
Debit and credit the accounts affected
Ensure the equation still balances and debits = credits