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Effect of transactions

Practice the following: Assume the entity is using US GAAP, accrual-basis accounting.
For each of the following independent situations, determine the effect of that transaction on: net income; cash; total assets; total liabilities. Complete the primer exercise by filling in the chart, showing in each area either I (increase), D (decrease), or NE (no effect). Do not leave any area blank! Each situation is independent unless indicated. (see below).

1) Net Income 2) Cash 3) Total Assets 4) Total Liability
16. buy inventory for cash
17. Exchange land for land(fair value = book value)
18. equipment impaired
19. equipment up in value
20. acquire land for cash
21. depreciation expense
22. buy building for cash plus a note
23. paid legal fees to set up corporation
24. received insurance more than fire loss
25. collect an account receivable

Solution Preview

16. Buy inventory for cash

There is no effect on net income. Cash will reduce. Total assets remain the same as decrease in cash is the same as increase in inventory. There is no effect on total liability

17. Exchange land for land(fair value = book value)

Since the fair value = book value there is no gain or loss and so no effect on total income. Since this is a exchange, there is no effect on cash. Total assets remain the same and there is no effect on total liability

18. Equipment impaired

When equipment is impaired, its value is written down and ...

Solution Summary

The solution explains the effect of given transactions on net income, cash, total assets and total liabilities

$2.19