Explain briefly how each of the following transactions would affect a company\'s

Question

Explain briefly how each of the following transactions would affect a company's balance sheet. (Remember, assets must equal liabilities plus owner's equity before and after the transaction.) a. Sale of equipment with a book value of $300,000 for $500,000 cash. b. Purchase of a new $80 million building, financed 40 percent with cash and 60 percent with a bank loan. c. Purchase of a new building for $60 million cash. d. A $40,000 payment to trade creditors. e. A firm's repurchase of 10,000 shares of its own stock at a price of $24 per share. f. Sale of merchandise for $80,000 in cash. g.Sale of merchandise for $120,000 on credit. h. Dividend payment to shareholders of $50,000.

Explanation / Answer

For this problem you have to know what accounts will be affected as well as how they are affected. Hint: The journal entry. So for an example: Number A. The journal entry would be: Debit Cash Debit Accumulated Depreciation Credit Equipment Credit Gain on Sale of Equipment. Now you have the journal entry you should be able to solve the problem. Liabilities are not affected. There is a decrease in one asset (equipment) and one contra asset (accumulated depreciation) and an increase in one asset (cash). The net result is an increase in assets. Also you have an increase in Owners Equity because a gain on sale will increase net income, which in turn will increase retained earnings.

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