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Exercise 2.1
Determining accounting equation amounts. LO 2-1, 2-2
Just before Johnson Laboratories opened for business, Howard Johnson, the owner, had the following assets and liabilities.
 

Cash	$	41,400
Laboratory Equipment		76,500
Laboratory Supplies		7,700
Loan Payable		16,000
Accounts Payable		10,100

Determine the totals that would appear in the firm’s fundamental accounting equation.

   
Completing the accounting equation. LO 2-1, 2-2
The fundamental accounting equations for several businesses follow. Supply the missing amounts.
 
   
Exercise 2.3 Determining the effects of transactions on the accounting equation. LO 2-1, 2-2, 2-3
TRANSACTIONS
 
Paid $2,100 for utilities.
Performed services for $10,500 on account.
Received $6,500 from charge account customers.
Paid salaries of $4,500 to employees.
Paid $8,000 to a creditor on account.
Owner invested $90,000 in the business.
Purchased $26,700 of supplies on account.
Purchased equipment for $21,000 cash.
Paid $6,000 for rent (in advance).
Performed services for $7,800 cash.

Indicate the impact of each of the transactions below on the fundamental accounting equation
(Assets = Liabilities + Owner’s Equity) by placing a “+” to indicate an increase and a “−” to indicate a decrease.
The first transaction is entered as an example.
(If transaction causes one account to increase and another to decrease within the same classification
of the accounting equation, select +/-.)
 
 
 
Determining balance sheet amounts. LO 2-1, 2-2, 2-3
The following financial data are for the dental practice of Dr. Donna Wells when she began operations in July.
 
Owes $17,100 to the Allen Equipment Company.
Has cash balance of $11,600.
Has dental supplies of $2,700.
Owes $3,230 to Contemporary Furniture Supply.
Has dental equipment of $24,650.
Has office furniture of $6,100.

Determine the amounts that would appear in Dr. Wells’ balance sheet.

   
Exercise 2.5 Determining the effects of transactions on the accounting equation. LO 2-1, 2-2, 2-3
The Copy Center had the transactions listed below during the month of June.  

TRANSACTIONS
John Amos started the business with a cash investment of $46,000.
Purchased equipment for $15,000 on credit.
Performed services for $3,500 in cash.
Purchased additional equipment for $3,200 in cash.
Performed services for $4,350 on credit.
Paid salaries of $3,750 to employees.
Received $1,800 cash from charge account customers.
Paid $7,400 to a creditor on account.
  
Show how each transaction would be recorded in the accounting equation.
(Enter decreases to account balances with a minus sign.)
 

   
Exercise 2.6 Computing net income or net loss. LO 2-4
The Computer Store had the following revenue and expenses during the month ended July 31.  
 

Fees for computer repairs	$	36,100
Advertising expense		4,600
Salaries expense		17,400
Telephone expense		1,500
Fees for printer repairs		4,850
Utilities expense		750

Did the firm earn a net income or incur a net loss for the period? What was the amount?
 

   
Exercise 2.7 Identifying transactions. LO 2-1, 2-2, 2-3
 

Assets

=

Liabilities

+

Owner’s Equity

Cash

+

Accounts Receivable

+

Equipment

=

Accounts Payable

+

Horace Brock, Capital

+

Revenue

−

Expenses

Bal.

$

82,000

+

$

8,000

+

$

60,000

=

$

40,000

+

$

110,000

+

0

–

0

1.

+12,000

$

+12,000

2.

−7,800

+7,800

3.

−4,200

−4,200

4.

−6,910

$

6,910

5.

+1,800

−1,800

6.

+13,380

+13,380

7.

−4,320

4,320

The above equation shows the effects of a number of transactions that took place at Brock Auto Repair Company
during the month of July. Describe each transaction.
 

   
On December 1, Doris Turner opened a speech and hearing clinic. During December, her firm had the following transactions involving revenue and expenses. Did the firm earn a net income or incur a net loss for the period? What was the amount?

Paid $2,600 for advertising.
Provided services for $2,300 in cash.
Paid $700 for telephone service.
Paid salaries of $2,100 to employees.
Provided services for $2,500 on credit.
Paid $350 for office cleaning service.
 
-2,600
+2,300
-700
-2,100
+2,500
-350

-$950 net loss
   
Exercise 2.8 Preparing an income statement. LO 2-4
At the beginning of September, Selena Cantu started Cantu Wealth Management Consulting,
a firm that offers financial planning and advice about investing and managing money.
On September 30, the accounting records of the business showed the following information.
 

Cash	$	66,400
Accounts Receivable		8,200
Office Supplies		7,000
Office Equipment		75,200
Accounts Payable		11,600
Selena Cantu, Capital, September 1, 2019		53,600
Fees Income		156,000
Advertising Expense		13,200
Salaries Expense		32,200
Telephone Expense		1,800
Withdrawals		18,200

Prepare an income statement for the month of September 2019.
 

   
Exercise 2.9 Computing net income or net loss. LO 2-4
On December 1, Kate Holmes opened a speech and hearing clinic.
During December, her firm had the following transactions involving revenue and expenses.

Paid $2,250 for advertising.
Provided services for $1,950 in cash.
Paid $630 for telephone service.
Paid salaries of $1,750 to employees.
Provided services for $2,150 on credit.
Paid $280 for office cleaning service.

Did the firm earn a net income or incur a net loss for the period? What was the amount?
 

   
Exercise 2.10 Preparing a statement of owner's equity and a balance sheet. LO 2-5
At the beginning of September, Selena Cantu started Cantu Wealth Management Consulting,
a firm that offers financial planning and advice about investing and managing money.
On September 30, the accounting records of the business showed the following information. 
 

Cash	$	67,200
Accounts Receivable		9,000
Office Supplies		7,800
Office Equipment		76,000
Accounts Payable		12,400
Selena Cantu, Capital, September 1, 2019		54,400
Fees Income		156,800
Advertising Expense		14,000
Salaries Expense		33,000
Telephone Expense		2,600
Withdrawals		14,000

Required:
Prepare a statement of owner’s equity for the month of September and a balance sheet for
Cantu Wealth Management Consulting as of September 30, 2019.
 
Complete this question by entering your answers in the tabs below.
 
Stmt of Owners Eqty
Balance Sheet
Prepare a statement of owner’s equity for the month of September 30, 2019.
 

 
Balance Sheet
Prepare a balance sheet for Cantu Wealth Management Consulting as of September 30, 2019.
 

   
You are calculating your net worth, and you have determined that your assets total $110,000,
and your liabilities total $90,000. Your net worth is therefore _______________.
 
$20,000
   
What are expenses?
 
1. the outflow of money (costs)
2. the use of other assets
3. incurring of liabilities
4. includes- cost of materials, labor, supplies, services used to produce revenue
5. cause a decrease in owner's equity
   
Teresa Wells purchased a computer for $3,250 on account for her business.
What is the effect of this transaction?
 
Equipment is increased by $3,250
Accounts payable is increased by $3,250.
   
Interior Designs has assets of $90,000 and liabilities of $35,000. What is the owner's equity?
 
$55,000
   
Haden Hardware had revenues of $55,000 and expenses of $26,000. How does this affect owner's equity?
 
$29,000 increase
   
John Amos began a new business by depositing $75,000 in the business bank account.
He wrote two checks from the business account: $12,000 for office furniture and $4,000 for office supplies.
What is his financial interest in the company?
 
$75,000
   
What are the steps to analyze the effect of a business transaction?
 
1. Describe the financial event.

a. Identify the property.
b. Identify who owns the property.
c. Determine the amount of increase or decrease.


2. Make sure the equation is in balance.

a. PROPERTY = FINANCIAL INTEREST
   
Specialty Import Co. has no liabilities. The asset and owner's equity balances are as follows.
What is the balance of "Supplies"?

Cash                                                      $25,000
Office Equipment                             $15,000
Supplies                                               ????
Jason Ogden Capital                        $50,000
 
$10,000
   
Describe a transaction that will cause Accounts Payable and Cash to decrease by $700.
 
the payment of $700 to a creditor on account.