E1-21 & E1-26
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)
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...