Nature of Transactions Teri West operates her own catering service. Summary fina

Question

Nature of Transactions

Teri West operates her own catering service. Summary financial data for July are presented in equation form as follows. Each line designated by a number indicates the effect of a transaction on the equation. Each increase and decrease in stockholders' equity, except transaction (5), affects net income.

a. (1) Select the description for transaction 1.

Provided catering services for cash.

a. (2) Select the description for transaction 2.

Purchase of land for cash.

a. (3) Select the description for transaction 3.

Payment of cash for expenses.

a. (4) Select the description for transaction 4.

Purchase of supplies on account.

a. (5) Select the description for transaction 5.

Paid cash dividends.

a. (6) Select the description for transaction 6.

Payment of cash to creditors.

a. (7) Select the description for transaction 7.

Recognition of cost of supplies used.

b. What is the amount of the net increase in cash during the month?
$

c. What is the amount of the net increase in stockholders' equity during the month?
$

d. What is the amount of the net income for the month?
$

e. How much of the net income for the month was retained in the business?
$

Assets = Liabilities + Stockholders' Equity Cash + Supplies + Land = Accounts Payable + Common Stock + Retained Earnings - Dividends + Fees Earned - Expenses Bal. 40,000 3,000 82,000 7,500 50,000 67,500 1. +71,800 +71,800 2. -15,000 +15,000 3. -47,500 -47,500 4. +1,100 +1,100 5. -5,000 -5,000 6. -4,000 -4,000 7. -1,500 -1,500 Bal. 40,300 2,600 97,000 4,600 50,000 67,500 -5,000 71,800 -49,000

Explanation / Answer

a. (1) Select the description for transaction 1.

Provided catering services for cash.

a. (2) Select the description for transaction 2.

Purchase of land for cash.

a. (3) Select the description for transaction 3.

Payment of cash for expenses.

a. (4) Select the description for transaction 4.

Purchase of supplies on account.

a. (5) Select the description for transaction 5.

Paid cash dividends.

a. (6) Select the description for transaction 6.

Payment of cash to creditors.

a. (7) Select the description for transaction 7.

Recognition of cost of supplies used.

b. What is the amount of the net increase in cash during the month?
$ 300 [ 71800-15000-47500-5000-4000]

c. What is the amount of the net increase in stockholders' equity during the month?
$ 22800 [71800-47500-1500]

d. What is the amount of the net income for the month?
$ -5000

e. How much of the net income for the month was retained in the business?
$ 62500

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