Question

complete the following table by recording if each transaction increased, decreased, or no change on assets, liablites, and shareholder's equity

-issuesd stock for cash

-paid interst on bank borrowing

Answer 1

• Issued stock for Cash

--When Stock is issued for Cash, Cash is received and Common Stock value also gets increased.

--Cash is a part of Asset and Common Stock is a part of Shareholder’s Equity.

--Hence, ASSET = Increased, LIABILITIES = No Change, SHAREHOLDER’s EQUITY = Increased.

• Paid Interest on Bank Borrowings

--When Interest is paid, Cash is paid off.

--This decreases Cash balance which is a part of ASSET.

--Interest is an expense and payment of this reduced Net Income. Reduction in Net Income will lead to lower Retained Earnings and hence lower Stockholder’s Equity.

--Hence, ASSET = Decreased, LIABILITIES = No Change, SHAREHOLDER’s EQUITY = Decreased.