Show the effect of each of the following transactions on the basic accounting equation, by preparing a table like the one in Exhibit 2-3. The company’s fiscal year end is December 31.
a. On January 1, 2016, the company borrowed $15,000 from the bank.
b. On December 31, 2016, the company paid the interest on the bank loan in transaction “a.” The interest rate is 6%.
c. On January 1, 2016, the company bought equipment for $10,000 cash.
d. On December 31, 2016, the company recorded depreciation on the equipment, using the straight-line method. The equipment has an estimated useful life of six years and an estimated residual value of $1,000.
e. Purchases of inventory on account during the year totalled $87,500.
f. Sales for the year totalled $147,500, of which $17,500 was for cash and the remainder was on account.
g. The cost of the products sold from inventory during the year in transaction (e) was $85,000.
h. Payments to suppliers for inventory purchases totalled $73,000 during the year.
i. Collections on account from customers totalled $116,000 for the year. j. Employees earned wages of $48,400 during the year, which were recorded as Wages Payable.
k. All employee wages were paid by the end of the year except the wages for the last week in December, which totalled $1,200.
l. Dividends were declared and paid in the amount of $1,000.