Practice Problems

Problem 1 Solution +

The land (asset) and common stock (owner’s equity) account balances will go up. Thus, assets and owner's equity will increase.
The office supplies (asset) account balance will go up, and cash (asset) balance will go down. Since they are both assets, total assets will not change.
The car (asset) balance will go up by $15,000, and cash (asset) balance will go down by $5,000. Also, the note payable (liability) account balance will go up by $10,000. Therefore, this transaction will cause a net $10,000 increase in assets and a $10,000 increase in liabilities.
The equipment (asset) account balance and accounts payable (liability) account balance will go up.
Wages represent an expense, so expenses will go up. This, in turn, will reduce owners' equity. Cash (assets) will also go down.
Revenues (rendering service) will increase. This, in turn, will increase owners' equity. This will also increase the accounts receivable balance (assets).
Revenues (owner’s equity) will go up, and cash (assets) will go up.

Problem 2

Use the following account balances for the month of May, ending May 31, and determine the following:

Account Balances for the Month of May, Ending May 31
Assets	Account balances	Liabilities and stockholders' equity	Account balances
Cash	$15,000	Building	$120,000
Accounts receivable (A/R)	$4,000	Accounts payable (A/P)	$60,000
Supplies	$3,000	Salaries payable	$1,000
Equipment	$30,000	Interest payable	$10,000
Land	$5,000	Capital stock	$51,500
Dividends	$26,000	Utilities expense	$1,000
Fees earned	$85,000	Supplies expense	$500
Salary expense	$15,000	Retained earnings, May 1	$14,000
Advertising expense	$2,000	-	-

Problem 2 Solution +

Step 2, Part 1
Retained earnings (balance as of May 31)	= Retained earnings (balance as of May 1)
-	+ net income
-	net loss
-	dividends

Step 2, Part 2
Retained earnings (balance as of May 31)	= $14,000 + $66,500 - $26,000
-	= $54,500

Total assets	= cash + A/R + supplies + equipment + land + building
	= $15,000 + $4,000 + $3,000 + $30,000 + $5,000 + $120,000
	= $177,000

Total liabilities	= A/P + salaries payable + interest payable
	= $60,000 + $1,000 + $10,000
	= $71,000

Total stockholders' equity	= capital stock + retained earnings
	= $51,500 + $54,500
	= $106,000

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