Question

Thunder Corp. provides services in April and receives payment in May. (a) What is the effect on the accounting equation for Thunder Corp. in May? (b) What is the effect on the accounting equation for Thunder Corp. in April?

Options are:

(a) Assets don't change; Stockholders' Equity increases

(b) Liabilities increase; Stockholders' Equity increases

(c) Assets increase; Stockholders' Equity increases

(d) No net change in Assets, Liabilities or Stockholders' Equity

(e) Assets decrease; Liabilities decrease

(f) Assets increase; Liabilities decrease

Answer 1

(b) What is the effect on the accounting equation for Thunder Corp. in April?

Answer:  Assets increase; Stockholders' Equity increases

Assets increase --> because of increase in accounts receivable

Stockholders' Equity increases --> Retained earnings increase because of service revenue

.

(a) What is the effect on the accounting equation for Thunder Corp. in May?

Answer: No net change in Assets, Liabilities or Stockholders' Equity

Assets increase as cash received for the services provided in April.

Assets decrease because of the decrease in accounts receivables as cash received

So, the net change in Assets = $0