A number of business transactions carried out by Smalling Manufacturing Company are as follows.

a. Borrowed money from a bank.

b. Sold land for cash at a price equal to its cost.

c. Paid a liability.

d. Returned for credit some of the office equipment previously purchased on credit but not yet paid for. (Treat this the opposite of a transaction in which you purchased office equipment on credit.)

e. Sold land for cash at a price in excess of cost. (Hint: The difference between cost and sales price represents a gain that will be in the company's income statement.)

f. Purchased a computer on credit.

g. The owner invested cash in the business.

h. Purchased office equipment for cash.

i. Collected an account receivable.

Required:

1. Indicate the effects of each of these transactions on the total amounts of the company's assets, liabilities, and owner's equity.

Answer and Explanation:

The indications of the effect of each of following transactions are as follows

Particulars Assets Liabilities Stockholder equity

a. Borrowed

money from bank Increase Decrease No effect

b. Sold land for Cash increase No effect No effect

cash at Land decrease

a price equal

to its cost

c. Paid a liability Decrease Decrease No effect

d. Returned for credit Decrease Decrease No effect

some of the office

equipment previously

purchased on credit

but not yet paid for

e. Sold land for cash at Cash increase No effect Increase as Gain

a price in excess of cost Land decrease

f. Purchased a computer Increase Increase No effect

on credit

g. The owner invested

cash in the business Increase No effect Increase

h. Purchased office Increase in office No effect No effect

equipment for cash Decrease in cash

g. Collected an Increase in cash No effect No effect

account receivable Decrease in account

receivable