Brandon Computer Timeshare Co. entered into the following transactions during Ma

Question

Brandon Computer Timeshare Co. entered into the following transactions during May 2010: 1. Purchased computer terminals for $20,000 fromDigital Equipment on Account 2. Paid $4,000 cash for May rent on storage space 3. Received $15,000 cash fromcustomers for contracts billed in April 4. Provided computer services to Fisher Construction Co. for $3,000 cash 5. Paid Northern States Power Co. $11,000 cash for enery useage in May 6. Brandon invested an additional $$32,000in the business 7. Paid Digital Equipment for the terminals purcased in (1) above 8. Incurred advertising expense for May of $1,200 on account INSTRUCTIONS: - Indicate with the appropriate letter whether each of the transactions above result in: (a) an increase in assets and a decrease in assets (b) an increase in assets and an increase in owner's equity (c) an increase in assets and ian increase in liabilities (d) a decrease in assets and a decrease in owner's equity (e) a decrease in assets and a decrease in liabilities (f) an increase in liabilities and a decrease in owner's equity (g) an increase in owner's equity and a decrease in liabilities Thank you!

Explanation / Answer

1. Purchased computer terminals for $20,000 from Digital Equipment on account.
c) an increase in assets and an increase in liabilities.
Explanation : This is because asset increase because of purchase and liabilities too as it is a credit purchase.

2. Paid $4,000 cash for May rent on storage space.
(d) a decrease in assets and a decrease in owner's equity.
Explanation : This is because cash which is an asset reduces and since it is an expense it has an effect of profit reducing equity.

3. Received $15,000 cash from customers for contracts billed in April.
(a) an increase in assets and a decrease in assets
Explanation : This is because cash which is an asset increases and since it is an income it has an effect of profit increasing equity.

4. Provided computer services to Fisher Construction Company for $3,000 cash.
(b) an increase in assets and an increase in owner's equity
Explanation : This is because cash which is an asset increases and since it is an income it has an effect of profit increasing equity.

5. Paid Northern States Power Co. $11,000 cash for energy usage in May.
(d) a decrease in assets and a decrease in owner's equity
Explanation : This is because cash which is an asset reduces and since it is an expense it has an effect of profit reducing equity.

6. Brandon invested an additional $32,000 in the business.
(b) an increase in assets and an increase in owner's equity
Explanation : This is because cash which is an asset increases and the owner's contribution also increases having an effect on increase in equity.

7. Paid Digital Equipment for the terminals purchased in (1) above.
(e) a decrease in assets and a decrease in liabilities
Explanation : This is because cash which is an asset reduces and since a creditor is paid off it reduces liability.

8. Incurred advertising expense for May of $1,200 on account.
(f) an increase in liabilities and a decrease in owner's equity
Explanation : This is because a credit purchase increases creditor leading to a rise in liabilities and since it is an expense it has an effect of profit reducing equity.

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