7. Consider the effects of the independent transactions, a through i, on a compa
ID: 2407714 • Letter: 7
Question
7. Consider the effects of the independent transactions, a through i, on a company’s balance sheet, income statement, statement of cash flows, and statement of stockholders’ equity.
a. The company purchased inventory on credit.
b. The company sold all inventory purchased in transaction a) on credit (and for more than its cost).
c. The company collected cash from customers from transaction b).
d. The company purchased equipment with cash.
e. The company paid cash for a note payable that came due.
f. The company paid cash for interest on borrowings.
g. Wages were earned by company employees but not yet paid.
h. The company paid cash in dividends.
i. The company received cash for the issuance of stock.
Complete the table below to explain the effects and financial statement linkages. Use “+” to indicate the account increases and “–” to indicate the account decreases (15 pts).
a.
b.
c.
d.
e.
f.
g.
h.
i.
Balance sheet
Cash
Noncash assets
Total liabilities
Contributed capital
Retained earnings
Statement of cash flows
Operating cash flow
Investing cash flow
Financing cash flow
Income statement
Revenues
Expenses
Net earnings
Statement of stockholders’ equity
Contributed capital
Retained earnings
a.
b.
c.
d.
e.
f.
g.
h.
i.
Balance sheet
Cash
Noncash assets
Total liabilities
Contributed capital
Retained earnings
Statement of cash flows
Operating cash flow
Investing cash flow
Financing cash flow
Income statement
Revenues
Expenses
Net earnings
Statement of stockholders’ equity
Contributed capital
Retained earnings
Explanation / Answer
a
b
c
d
e
f
g
h
Balance sheet
Cash
No effect
No effect
+
-
-
-
No effect
-
Non cash asset
+
+
-
+
No effect
No effect
No
effect
No effect
Total liabilities
+
No effect
No effect
No effect
-
-
+
No effect
Contributed capital
No effect
No effect
No effect
No effect
No effect
No effect
No effect
No effect
Retained earnings
-
+
No effect
No effect
No effect
-
-
-
Statement of cash flows
Operating cash flows
-
+
+
No effect
-
-
+
No effect
Investing cash flows
No effect
No effect
No effect
-
No effect
No effect
No effect
No effect
Financing cash flows
No effect
No effect
No effect
No effect
No effect
No effect
No effect
-
Income statement
revenues
-
+
+
-
-
-
-
No effect
expenses
+
No effect
No effect
+
+
+
+
No effect
Net earnings
-
+
+
No effect
-
-
-
No effect
Statement of stock holders equity
Contributed capital
No effect
No effect
No effect
No effect
No effect
No effect
No effect
+
Retained earnings
-
+
No effect
No effect
No effect
-
-
No effect
a
b
c
d
e
f
g
h
Balance sheet
Cash
No effect
No effect
+
-
-
-
No effect
-
Non cash asset
+
+
-
+
No effect
No effect
No
effect
No effect
Total liabilities
+
No effect
No effect
No effect
-
-
+
No effect
Contributed capital
No effect
No effect
No effect
No effect
No effect
No effect
No effect
No effect
Retained earnings
-
+
No effect
No effect
No effect
-
-
-
Statement of cash flows
Operating cash flows
-
+
+
No effect
-
-
+
No effect
Investing cash flows
No effect
No effect
No effect
-
No effect
No effect
No effect
No effect
Financing cash flows
No effect
No effect
No effect
No effect
No effect
No effect
No effect
-
Income statement
revenues
-
+
+
-
-
-
-
No effect
expenses
+
No effect
No effect
+
+
+
+
No effect
Net earnings
-
+
+
No effect
-
-
-
No effect
Statement of stock holders equity
Contributed capital
No effect
No effect
No effect
No effect
No effect
No effect
No effect
+
Retained earnings
-
+
No effect
No effect
No effect
-
-
No effect
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