Acct 205

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ACCT 205 Wk 1 Dis. 1

E1-21 & E1-26

Question E1-21
KEY: A/R = Accounts Receivable A/P = Accounts Payable
Indicate the effects of the following business transactions on the accounting equation of a Blockbuster Video location.

a. Received cash of $10,000 from the owner, who was investing in the business. Answer: Increase asset (Cash)Increase owner’s equity (Capital

b. Earned video rental revenue on account, $1200.
Answer: Increase asset (Accounts Receivable)Increase owner equity (Rental Revenue)

c. Purchased office furniture on account, $600
Answer: Increase asset (Off. Furniture)Increase liability (A/P)

d. Received cash on account $300.
Answer: Increase asset (Cash)Decrease asset (A/R)

e. Paid cash on account, $250
Answer: Decrease asset (Cash)Decrease liability (A/P)

f. Sold land for $12,000, which was the cost of the land.
Answer: Increase asset (Cash)Decrease land (Land)

g. Rented videos and received cash of $600.
Answer: Increase asset (Cash)Increase owner equity (Rental Revenue)

h. Paid monthly office rent of $800.
Answer: Decrease asset (Cash)Decrease owner equity (Rent Expense)

i. Paid $100 cash to purchase supplies.
Answer: Decrease asset (Cash)Increase asset (Supplies)

Question E1-26
In this exercise you will practice using the data of a well-known company with the amounts rounded. The 2004 annual report of UPS, the overnight shipping company, reported revenue of $32 billion. Total expenses for the year were $29 billion. UPS ended the year with total assets of $33 billion, and it owed debts totaling $17 billion. At year-end 2003, UPS reported total assets of $30 billion and total liabilities of $17 billion.

1. Compute UPS’s net income for 2004. Revenue $32 billion - Expenses $29 billion = $3 billion

2. Did UPS’s owners’ equity...
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