1-15
EXERCISE 1-7A
a.
Assets = Liabilities + Stockholders’ Equity
Cash = Note Payable + Common Stock + Retained Earnings
195,000 = 90,500 + 84,500 + ?
Retained Earnings = $195,000 – $90,500 – $84,500 = $20,000
b. & c.
Moss Company
Effect of Year 3 Transactions on the Accounting Equation
Assets = Liabilities + Stockholders’ Equity
Notes Common Retained
Event Cash = Payable + Stock + Earnings
Beginning Balances 195,000 90,500 84,500 20,000
1. Earned Revenue 42,000 NA NA 42,000
2. Paid expenses (24,000) NA NA (24,000)
3. Paid dividend (3,000) NA NA (3,000)
Ending Balance 210,000 = 90,500 + 84,500 + 35,000
d.
Cash = Note Payable + Common Stock + Retained Earnings
210,000 = 90,500 + 84,500 + 35,000
Liabilities + Stockholders’ Equity = $90,500 + $84,500 + $35,000 = $210,000
Assets = Liabilities + Stockholders’ Equity
$210,000 = $210,000
e. The beginning and ending balances in the cash account were $195,000
and $210,000 respectively. The beginning balance in the common stock
account was $84,500. This balance did not change during the
accounting period. The reason the cash balance changed but the
common stock balance did not was because the accounting events that
Moss experienced during the Year 3 accounting period affected the
cash account but not the common stock account.