5. Transaction analysis and statement preparation . The transactions that follow

Question

5. Transaction analysis and statement preparation. The transactions that follow

relate to Burton Enterprises for March 20X1, the company%u2019s first month of activity.

3/1: Joanne Burton, the owner invested $20,000 into the business for $20,000 of Common Stock.

3/4: Performed $2,400 of services on account.

3/7: Acquired a small parcel of land by paying $6,000 cash.

3/12: Received $700 from a client, who was billed previously on March 4.

3/15: Paid $800 to the Journal Herald for advertising expense.

3/18: Acquired $9,000 of equipment from Park Central Outfitters by paying

$7,000 down and agreeing to remit the balance owed within the next

2 weeks, (Accounts Payable).

3/22: Received $300 cash from clients for services.

3/24: Paid $1,500 on account to Park Central Outfitters in partial settlement

of the balance due from the transaction on March 18.

3/28: Rented a car from United Car Rental for use on March 28. Total charges

amounted to $75, with United billing Burton for the amount due.

3/31: Paid $900 for March wages.

3/31: Processed a $600 cash withdrawal (dividend) from the business for Joanne Burton.

Instructions

a. Determine the impact of each of the preceding transactions on Burton%u2019s assets,

liabilities, and owner%u2019s equity. See exhibit 1.5. Use the following format:

Assets                                                                         = Liabilities                      + Owner%u2019s Equity

Cash, Accounts Receivable, Land, Equipment       Accounts Payable       (+)Common Stock (+) Revenues

            (-) Dividends (-) Expenses

a. Record each transaction on a separate line. Calculate balances only after the last transaction has been recorded.

b. Prepare an income statement, a statement of retained earnings, and a balance sheet (See Exhibit 1.2, 1.3 and 1.4).

Explanation / Answer

Assets=liabilities + owner's equity

20,000(cash) =0+20,000 (common stock)

20,000(cash) + 2400(a.c recvble) =0+20,000 (common stock)+2400(rev)

14,000(cash)+6,000(land)+2400(a.c recvble)=0+20,000 (common stock)+2400(rev)

14,700+6000+1700=0+20,000 (common stock)+2400(rev)

13,900(cash)+6000(land)+1700(.c. rcvble)=20,000 (common stock)+2400(rev)-800(exp)

6900(cash)+6,000(land)+1700(a.c recvbl)+9,000(equip)=2,000(a.cpayble)+ 20000+2400(rev)-800(exp)

7200(cash+)6,000(land)+1700(a.c recvbl)+9,000(equip)=2,000(a.c payble)+20000+2700-800(exp)

5700(cash+)6,000(land)+1700(a.c recvbl)+9,000(equip)=0(a.c payble)+20000

3200(rev)-800(exp)

5700(cash+)6,000(land)+1700(a.c recvbl)+9,000(equip)=75(a.c payble)+20000+3200-875(exp)

4800(cash+)6,000(land)+1700(a.c recvbl)+9,000(equip)=75(a.c payble)+20000+3200-1775(exp)

4200(cash+)6,000(land)+1700(a.c recvbl)+9,000(equip)=75(a.c payble)+20000+3200-1775(exp)-600(dividend)

conclusion:

20,900=20,900

(hence assets=liab+ common stock)

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