The Marchetti Soup Company entered into the following transa

The Marchetti Soup Company entered into the following transactions during the month of June: (1) purchased inventory on account for $220,000 (assume Marchetti uses a perpetual inventory system); (2) paid $55,000 in salaries to employees for work performed during the month; (3) sold merchandise that cost $150,000 to credit customers for $275,000; (4) collected $255,000 in cash from credit customers; and (5) paid suppliers of inventory $200,000. Analyze each transaction and show the effect of each on the accounting equation for a corporation. (Amounts to be deducted should be indicated by a minus sign. Enter the net change on the accounting equation.) Assets = Liabilities + Paid-in capital + Retained Earnings (1) (2) (3) |(4)

Solution

Assets = Liabilities + Paid in cpaital + Retained earnings 1 $   220,000 $   220,000 2 $   (55,000) $                   (55,000) 3 $   125,000 $                   125,000 Inventory will decrease by $150,000 and receivable will increase by $275,000. so net effect will be $125,000 4 $                 - Cash will increase and receivable will decrease. Both are assets. So net effect will be 0 5 $ (200,000) $ (200,000)