Page 54 - Accounting Principles (A Business Perspective)

1. Accounting and its use in business decisions

d. Paid for the truck purchased in (b).
e. Employed Mary Childers as a salesperson at USD 1,200 per month. She is to start work next week.
f. Signed an agreement with a bank in which the bank agreed to lend the company up to USD 200,000 any time

within the next two years.
Exercise F Bradley Company, engaged in a courier service business, completed the following selected
transactions during July 2010:
a. Purchased office equipment on account.
b. Paid an account payable.
c. Earned service revenue on account.
d. Borrowed money by signing a note at the bank.

e. Paid salaries for month to employees.
f. Received cash on account from a charge customer.
g. Received gas and oil bill for month.
h. Purchased delivery truck for cash.
i. Declared and paid a cash dividend.
Using a tabular form similar to Exhibit 4 (Part A), indicate the effect of each transaction on the accounting
equation using (+) for increase and (–) for decrease. No dollar amounts are needed, and you need not fill in the
Explanation column.
Exercise G Indicate the amount of change (if any) in the stockholders’ equity balance based on each of the

following transactions:
a. The stockholders invested USD 100,000 cash in the business by purchasing capital stock.
b. Land costing USD 40,000 was purchased by paying cash.
c. The company performed services for a customer who agreed to pay USD 18,000 in one month.
d. Paid salaries for the month, USD 12,000.
e. Paid USD 14,000 on an account payable.
Exercise H Give examples of transactions that would have the following effects on the items in a firm’s

financial statements:
a. Increase cash; decrease some other asset.
b. Decrease cash; increase some other asset.
c. Increase an asset; increase a liability.
d. Decrease retained earnings; decrease an asset.
e. Increase an asset other than cash; increase retained earnings.
f. Decrease an asset; decrease a liability.
Exercise I Which of the following transactions results in a decrease in retained earnings? Why?
a. Employees were paid USD 20,000 for services received during the month.

b. USD 175,000 was paid to acquire land.
c. Paid an USD 18,000 note payable. No interest was involved.
d. Paid a USD 200 account payable.
Exercise J Assume that the following items were included in the Retained Earnings column in the summary of
transactions for Cinck Company for July 2010:

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