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Effect on assets, liabilities, and equity

Indicate the net effect on assets, liabilities, and owners' equity resulting from each of the following transactions:

1. Capital stock was issued for $100,000 cash.
2. Bonds payable of $25,000 were refunded with capital stock.
3. Depreciation on plant and equipment equaled $8,500 for the year.
4. Inventory was purchased for $15,900 cash.
5. $9,400 worth of inventory was purchased on credit.
6. Inventory costing $4,500 was sold for $7, 200 on credit.
7. $3,500 in cash was received for merchandise sold on credit.
8. Dividends of $3,000 were declared.
9. The declared dividends of $3,000 were paid.
10. The company declared a stock split, and replaced each outstanding share with two new shares.

Solution Preview

1. Capital stock was issued for $100,000 cash.

This will increase assets (cash) by 100,000 and increase equity by 100,000

2. Bonds payable of $25,000 were refunded with capital stock.

This will decrease liabilities (bonds payable) by 25,000 and increase equity (capital stock) by 25,000

3. Depreciation on plant and equipment equaled $8,500 for the year.

This will reduce assets (through accumulated depreciation) by 8,500 and reduce equity ...

Solution Summary

The solution explains the effect on assets, liabilities, and equity of the given transactions

$2.19