Question

Nature of Transactions

Teri West operates her own catering service. Summary financial data for July 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 stockholders' equity, except transaction (5), affects net income.

	Assets			=	Liabilities +						Stockholders' Equity
	Cash + Supplies + Land			=	Accounts Payable	+	Common Stock	+	Retained Earnings	-	Dividends	+	Fees Earned	-	Expenses
Bal.	40,000	3,000	82,000		7,500		50,000		67,500
1.	+71,800												+71,800
2.	-15,000		+15,000
3.	-47,500														-47,500
4.		+1,100			+1,100
5.	-5,000										-5,000
6.	-4,000				-4,000
7.		-1,500													-1,500
Bal.	40,300	2,600	97,000		4,600		50,000		67,500		-5,000		71,800		-49,000

a. (1) Select the description for transaction 1.

Provided catering services for cash.

a. (2) Select the description for transaction 2.

Purchase of land for cash.

a. (3) Select the description for transaction 3.

Payment of cash for expenses.

a. (4) Select the description for transaction 4.

Purchase of supplies on account.

a. (5) Select the description for transaction 5.

Paid cash dividends.

a. (6) Select the description for transaction 6.

Payment of cash to creditors.

a. (7) Select the description for transaction 7.

Recognition of cost of supplies used.

b. What is the amount of the net increase in cash during the month?
$

c. What is the amount of the net increase in stockholders' 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

Solution:

b. What is the amount of the net increase in cash during the month?
$ .300 ( Ending Balance - Opening Balance)( $40,300 - $ 40,000)

c. What is the amount of the net increase in stockholders' equity during the month?
$ 17,800 ( revenue-expenses-dividend = 71800 -49000 -5000)

d. What is the amount of the net income for the month?
$ 22,800 ( revenue-expenses = 71800 -49000 )

e. How much of the net income for the month was retained in the business?

$ 17,800 (Net Income transferred to retained earnings - Dividend Paid) [$ 22,800 - $5,000]