Exercise 3-5 Sheridan Company, a computer services company, entered into these t

Question

Exercise 3-5

Sheridan Company, a computer services company, entered into these transactions during May 2017, its first month of operations.

Received $11,900 cash from customers for contracts billed in (4).

Using the following tabular analysis, show the effect of each transaction on the accounting equation. Put explanations for changes to revenues or expenses in the right-hand column. (If a transaction causes a decrease in Assets, Liabilities or Stockholders' Equity, place a negative sign (or parentheses) in front of the amount entered for the particular Asset, Liability or Equity item that was reduced.)

1. Stockholders invested $35,000 in the business in exchange for common stock of the company. 2. Purchased computers for office use (recorded as Equipment) for $32,900 from Ladd on account. 3. Paid $3,600 cash for May rent on storage space. 4. Performed computer services worth $18,100 on account. 5. Performed computer services for Wharton Construction Company for $5,900 cash. 6. Paid Western States Power Co. $7,100 cash for energy usage in May. 7. Paid Ladd for the computers purchased in (2). 8. Incurred advertising expense for May of $1,800 on account. 9.

Received $11,900 cash from customers for contracts billed in (4).

Using the following tabular analysis, show the effect of each transaction on the accounting equation. Put explanations for changes to revenues or expenses in the right-hand column. (If a transaction causes a decrease in Assets, Liabilities or Stockholders' Equity, place a negative sign (or parentheses) in front of the amount entered for the particular Asset, Liability or Equity item that was reduced.)

Explanation / Answer

Asset = Liabilities + Stockholders equity cash + Accounts receivable + equipment = Accounts payable + common stock + Retained earining Effect on Revenues and Expenses Revenue - expense 1 35000 35000 No Effect on revenue or Expenses 2 32900 32900 No Effect on revenue or Expenses 3 -3600 - 3600 Increase in Expense 4 18100 18100 increase in revenue 5 5900 5900 increase in revenue 6 -7100 - 7100 increase in expenses 7 -32900 -32900 No Effect on revenue or Expenses 8 1800 - 1800 increase in expenses 9 11900 -11900 No Effect on revenue or Expenses 9200 + 6200 + 32900 = 1800 + 35000 + 24000 - 12500

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