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    Effect of transactions

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    Practice the following: Assume the entity is using U.S. 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.

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    Solution Preview

    See the attached file.

    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 ...

    Solution Summary

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

    $2.19

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