ACC 231 – Fall 2020 (83633)
Suggested Solutions
Page 1 of 4
For each activity listed below, indicate how it effects (Increase, Decrease or No Effect) each part of the ACCOUNTING
EQUATION (A = L + OE). Entering numbers/accounts is optional. Assume the company is using Accrual Basis Accounting.
Description
ASSETS
"Resources"
LIABILITIES
"Creditors'
Claims"
OWNERS' EQUITY
"Owners' Claims"
1. Borrow $20,000 from 2nd National Bank $20,000 Increase
- Cash $20,000 Increase –
Note Payable (Debt) No Effect
2. Owner invests $12,500 cash in company $12,500 Increase
- Cash No Effect $12,500 Increase –
Owner’s Equity
3. Company repays $10,000 to the Bank from
the borrowing in #1 (assume all repayments are
principal)
$10,000
Decrease - Cash $10,000 Decrease –
Note Payable (Debt) No Effect
4. Purchase computer equipment for $4,500
cash $4,500 Increase -
Equipment
$4,500 Decrease
- Cash
No Effect No Effect
ACC231 - Fall 2020
Chapter 1 - ACTIVITY #1
Analyze Transactions with the Accounting Equation
ACC 231 – Fall 2020 (83633)
Suggested Solutions
Page 2 of 4
Description
ASSETS
"Resources"
LIABILITIES
"Creditors'
Claims"
OWNERS' EQUITY
"Owners' Claims"
5. Provide $1,500 of web design services to a
customer – the customer will pay us next
month (standard practice - regular terms)
$1,500 Increase
– Accounts
Receivable
No Effect $1,500 Increase –
Owner’s Equity
(Revenue/RE)
6. Purchase $250 of office supplies on credit
from vendor (an open account transaction).
Supplies will be used over next 3-4 months.
$250 Increase -
Supplies $250 Increase –
Accounts Payable No Effect
7. Company pre-pays $1,400 for September
office rent in August. $1,400 Decrease
– Cash
$1,400 Increase
– Prepaid Rent
No Effect No Effect
8. Company received and paid an invoice for
$400 from the phone company for a new
internet connection.
$400 Decrease -
Cash No Effect $400 Decrease –
Owner’s Equity
(Revenue/RE -
(Expense)
Hint: For each transaction (or "economic event"), think of the DUAL nature (we get one or more things, we give one or more things)
ACC 231 – Fall 2020 (83633)
Suggested Solutions
Page 3 of 4
ACC231 - Fall 2020
Chapter 1 - ACTIVITY #2 (83633)
Missing Information
1. At December 31, 2019, the Dargus Company has assets of $189,600 and total liabilities of $107,700.
What is total Stockholder's Equity for Dargus at December 31, 2019?
Assets = Liabilities + Equity ---- so $189,600 = $107,700 + S/E
To Balance, S/E must = $81,900 (then $189,600 = $107,700 + $81,900)
Use the following table to answer questions 2 and 3:
Dargus has provided the following data from its Balance Sheet at December 31, 20201:
Account Title Debits Credits
Cash - Big Bank 80,200
a)
Cash - Little Bank 22,700
a)
Inventory ???
Equipment 42,400
a)
Note Payable - Big Bank 66,400
b)
Total Liab
Σ b)
Note Payable - Little
Bank
37,500
b)
Common Stock 70,300
$ 103,900
Retained Earnings 30,600
Total $ ??? $204,800
Known Values
145,300
Σ a)
Target Value (DR=CR)
204,800
Difference - Inventory $ 59,500
2. What should Dargus' Inventory amount be at December 31, 2020?
Debits must equal credits; so Debits must total $204,800. Current debits total $145,300. So
Equipment must equal $59,500 for the Trial Balance to balance.
3. What are Dargus' Total Assets at December 31, 2020?
Cash, Inventory & Equipment are assets. The total of all of the assets = $204,800 (Left side of
Trial Balance)
4. What are Dargus’ Total Liabilities and Equity at December 31, 2020?
Liabilities (notes payable) are $103,900, Common Stock Equity is $70,300 and Retained Earnings
are $30,600 or $204,800 in toto (103,800+70,300+30,600= $204,800).
5. Can you tell what type of business organization Dargus is, simply by looking at the above table?
1 This table is what an accountant calls a “trial balance.” More on the trial balance in future chapters.
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ACC 231 – Fall 2020 (83633)
Suggested Solutions
Page 4 of 4
As the trial balance contains an account called “common stock,” Dargus must be a Corporation.
Common stock is an item unique to corporate entities.
