7 Consider the effects of the independent transactions a thr

7. Consider the effects of the independent transactions, a through i, on a company’s balance sheet, income statement, statement of cash flows, and statement of stockholders’ equity.

a.      The company purchased inventory on credit.

b.      The company sold all inventory purchased in transaction a) on credit (and for more than its cost).

c.      The company collected cash from customers from transaction b).

d.      The company purchased equipment with cash.

e.      The company paid cash for a note payable that came due.

f.       The company paid cash for interest on borrowings.

g.      Wages were earned by company employees but not yet paid.

h.      The company paid cash in dividends.

i.        The company received cash for the issuance of stock.

Complete the table below to explain the effects and financial statement linkages. Use “+” to indicate the account increases and “–” to indicate the account decreases (15 pts).

a.

b.

c.

d.

e.

f.

g.

h.

i.

Balance sheet

Cash

Noncash assets

Total liabilities

Contributed capital

Retained earnings

Statement of cash flows

Operating cash flow

Investing cash flow

Financing cash flow

Income statement

Revenues

Expenses

Net earnings

Statement of stockholders’ equity

Contributed capital

Retained earnings

	a.	b.	c.	d.	e.	f.	g.	h.	i.
Balance sheet
Cash
Noncash assets
Total liabilities
Contributed capital
Retained earnings
Statement of cash flows
Operating cash flow
Investing cash flow
Financing cash flow
Income statement
Revenues
Expenses
Net earnings
Statement of stockholders’ equity
Contributed capital
Retained earnings

Solution

a

b

c

d

e

f

g

h

Balance sheet

Cash

No effect

No effect

+

-

-

-

No effect

-

Non cash asset

+

+

-

+

No effect

No effect

No

effect

No effect

Total liabilities

+

No effect

No effect

No effect

-

-

+

No effect

Contributed capital

No effect

No effect

No effect

No effect

No effect

No effect

No effect

No effect

Retained earnings

-

+

No effect

No effect

No effect

-

-

-

Statement of cash flows

Operating cash flows

-

+

+

No effect

-

-

+

No effect

Investing cash flows

No effect

No effect

No effect

-

No effect

No effect

No effect

No effect

Financing cash flows

No effect

No effect

No effect

No effect

No effect

No effect

No effect

-

Income statement

revenues

-

+

+

-

-

-

-

No effect

expenses

+

No effect

No effect

+

+

+

+

No effect

Net earnings

-

+

+

No effect

-

-

-

No effect

Statement of stock holders equity

Contributed capital

No effect

No effect

No effect

No effect

No effect

No effect

No effect

+

Retained earnings

-

+

No effect

No effect

No effect

-

-

No effect

	a	b	c	d	e	f	g	h
Balance sheet
Cash	No effect	No effect	+	-	-	-	No effect	-
Non cash asset	+	+	-	+	No effect	No effect	No effect	No effect
Total liabilities	+	No effect	No effect	No effect	-	-	+	No effect
Contributed capital	No effect	No effect	No effect	No effect	No effect	No effect	No effect	No effect
Retained earnings	-	+	No effect	No effect	No effect	-	-	-
Statement of cash flows
Operating cash flows	-	+	+	No effect	-	-	+	No effect
Investing cash flows	No effect	No effect	No effect	-	No effect	No effect	No effect	No effect
Financing cash flows	No effect	No effect	No effect	No effect	No effect	No effect	No effect	-
Income statement
revenues	-	+	+	-	-	-	-	No effect
expenses	+	No effect	No effect	+	+	+	+	No effect
Net earnings	-	+	+	No effect	-	-	-	No effect
Statement of stock holders equity
Contributed capital	No effect	No effect	No effect	No effect	No effect	No effect	No effect	+
Retained earnings	-	+	No effect	No effect	No effect	-	-	No effect