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22 March, 11:27

Journal Entries and The Accounting Equation 1) For the following items, determine the effect of each item on the accounting equation (A = L + E) and record the appropriate journal entries for the following transactions: a. Issued common stock for $20,000 cash. b. Purchased building for $200,000 cash and a $150,000 note.

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  1. 22 March, 15:18
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    Following would be the journal entries:

    1. Issue of common stock for cash:

    Cash A/C Dr. $20,000

    To Common Stock $20,000

    (Being common stock issued for cash)

    Effect on Accounting Equation:

    Issue of stock for cash will increase cash balance by $20,000 and at the same time increase equity balance by $20,000

    The equation would become:

    A + $20,000 = L + E + $20,000

    2. Purchased building for $200,000 cash and $150,000 note:

    Building A/C Dr. $350,000

    To Cash A/C $200,000

    To Note Payable A/C $150,000

    (Being building purchased for cash and a note issued for the unpaid balance)

    Effect on Accounting Equation:

    Building which is an asset, it's purchase would increase the assets side of the equation by total amount i. e $350,000.

    Cash which is again an asset, would reduce the asset side of the equation by $200,000

    The net effect of the above 2 items will result in an increase to the assets side of equation by $150,000

    Notes Payable is a liability and hence it will raise the Liabilities by $150,000.

    Thus, the equation would become:

    A + 150,000 = L + 150,000 + E
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