Transaction analysis C213: Accounting for Decision Makers ✓ Solved
For each transaction below, indicate the amount the affected accounts increase (treat amount as positive number) or decrease (treat amount as negative number).
1. Received $400,000 in cash from Tom Maudi and issued common stock to him.
2. Purchased land for $30,000 cash.
3. Borrowed $45,000 from the bank and signed a note.
4. Purchased $80,000 of inventory on account.
5. Sold some of the inventory in #4 for $50,000 on account.
6. Expensed inventory sold in #5. Cost of goods sold equals 60% of sales.
7. Purchased supplies on account for $1,000.
8. Paid $55,000 on accounts payable.
9. Paid property tax expense of $1,000.
10. Paid office employee salaries of $2,500.
11. Received $12,000 on accounts receivable.
12. Purchased 12 month insurance policy for $15,000.
13. Sold some of the inventory in #4 for $40,000 in cash.
14. Expensed inventory sold in #13. Cost of goods sold equals 60% of sales.
15. Purchased office building and warehouse for $200,000. Scorpion Company signed a note with the bank.
16. Paid $100 interest.
17. Paid $200 utilities.
Paper For Above Instructions
Transaction analysis is a critical component of accounting, providing insight into how financial transactions affect a company’s financial statements. The key to effective transaction analysis is to understand how each transaction impacts the accounting equation: Assets = Liabilities + Owners’ Equity. This paper will analyze each transaction for Scorpion Company by identifying increases or decreases in the relevant accounts.
1. Cash Received and Common Stock Issued
Scorpion Company received $400,000 in cash from Tom Maudi in exchange for common stock. In this transaction, the cash account, an asset, increases by $400,000. Meanwhile, equity also increases by the same amount due to the issuance of common stock. Thus:
- Cash: +$400,000
- Common Stock: +$400,000
2. Purchase of Land
The company purchased land for $30,000 cash. This results in a decrease in cash (an asset) by $30,000 while simultaneously increasing land (another asset) by the same amount. Hence:
- Cash: -$30,000
- Land: +$30,000
3. Borrowing from the Bank
Scorpion borrowed $45,000 from the bank, creating a liability in the form of a note payable. The cash received increases the company's assets, while the note payable increases liabilities:
- Cash: +$45,000
- Notes Payable: +$45,000
4. Purchase of Inventory on Account
The purchase of $80,000 of inventory on account does not involve cash immediately but does increase both inventory (asset) and accounts payable (liability):
- Inventory: +$80,000
- Accounts Payable: +$80,000
5. Sale of Inventory on Account
When the company sold $50,000 of inventory on account, accounts receivable increases while inventory decreases. The effects are:
- Accounts Receivable: +$50,000
- Inventory: -$50,000
6. Cost of Goods Sold for Inventory Sold
The cost of goods sold (COGS) for the inventory sold is 60% of the sales revenue. Therefore, COGS amounts to $30,000 ($50,000 * 60%). This decreases inventory and increases expenses:
- Inventory: -$30,000
- Cost of Goods Sold: +$30,000
7. Purchase of Supplies on Account
Purchasing $1,000 of supplies on account increases both supplies (asset) and accounts payable (liability):
- Supplies: +$1,000
- Accounts Payable: +$1,000
8. Payment on Accounts Payable
When $55,000 is paid towards accounts payable, cash decreases, and liabilities decrease:
- Cash: -$55,000
- Accounts Payable: -$55,000
9. Property Tax Expense Payment
Paying $1,000 in property taxes affects cash and recognizes an expense:
- Cash: -$1,000
- Property Tax Expense: +$1,000
10. Salary Payment
Payment of $2,500 in salaries also affects cash and increases expenses:
- Cash: -$2,500
- Salaries Expense: +$2,500
11. Cash Received on Accounts Receivable
When $12,000 is received from accounts receivable, cash increases while accounts receivable decreases:
- Cash: +$12,000
- Accounts Receivable: -$12,000
12. Purchase of Insurance Policy
Purchasing a 12-month insurance policy for $15,000 lessens cash while increasing prepaid expenses (asset):
- Cash: -$15,000
- Prepaid Insurance: +$15,000
13. Cash Sale of Inventory
When $40,000 of inventory is sold for cash, cash increases while inventory decreases:
- Cash: +$40,000
- Inventory: -$40,000
14. COGS for Cash Sale
The COGS for this sale is $24,000 ($40,000 * 60%), resulting in the following impacts:
- Inventory: -$24,000
- Cost of Goods Sold: +$24,000
15. Purchase of Office Building
The office building and warehouse purchased for $200,000 means cash decreases while assets increase:
- Cash: -$200,000
- Property, Plant, & Equipment: +$200,000
16. Interest Payment
Paying $100 in interest decreases cash and recognizes an interest expense:
- Cash: -$100
- Interest Expense: +$100
17. Utility Payment
Payment of $200 in utility expenses decreases cash and increases utility expenses:
- Cash: -$200
- Utilities Expense: +$200
Conclusion
Through the analysis of the transactions listed for Scorpion Company, we observe a comprehensive flow of cash, liabilities, and equity in response to operational activities. Understanding these transactions is pivotal for accurately portraying the company's financial health and performance.
References
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