Solution to Chapter 3 Assignment
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Chapter 3 Assignment
1. What is the effects of the following transaction on the accounting equation?
Hilltop paid accounts payable in cash
① Decrease in Asset = Decrease in Liability + No change in Equity
② Decrease in Asset = No change in Liability + Decrease in Equity
③ Increase in Asset = Increase in Liability + No change in Equity
④ No change in Asset = Decrease in Liability + Increase in Equity
2. Which of the following statements regarding income and expense recognition is
incorrect?
① Occurrence of income increases Equity.
② Occurrence of expense decreases Equity.
③ In the case of providing services, revenue is recognized when cash is received for
the service provided.
④ The expenditures incurred for manufacturing products are recognized as expenses
at the time of sale of the product.
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Chapter 3 Assignment
3. Show the effects of the following transactions on the accounting equation.
Purchased merchandise of $100,000 on Increase in asset by $100,000
Ex.
credit Increase in liability by $100,000
1. Borrowed $10,000 from a bank Increase in asset by $10,000
Increase in liability by $10,000
2. Sold products with a cost of $50,000 on Increase in asset by $30,000
credit for $80,000 Increase in equity by $30,000
3. Paid accounts payable of $5,000 with Decrease in asset by $5,000
cash Decrease in liability by $5,000
4. Paid interest on a bank loan with cash Decrease in asset by $1,000
of $1,000 Decrease in equity by $1,000
5. Received cash of $6,000 for accounts Increase in asset by $6,000
receivable. Decrease in asset by $6,000
6. Repaid a bank loan of $10,000 using the Decrease in liability by $10,000
cash received from issuing shares Increase in equity by $10,000
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Chapter 3 Assignment
4. Describe transactions incurred based on the effects on the accounting
equation.
Cash(asset) $10,000 increase,
Ex. Borrowed a bank loan of $10,000
Bank loan(liab.) $10,000 increase
1. Cash(asset) $5,000 decrease, Purchased inventory of $5,000 for
Inventory(asset) $5,000 increase cash
2. Cash(asset) $6,000 decrease,
Bank loan(liab.) $6,000 decrease Repaid a bank loan of $6,000
3. Cash(asset) $20,000 increase,
Issued shares and received $20,000
Share capital(equity) $20,000
in cash
increase
4. Cash(asset) $1,000 increase,
Received interest income of $1,000
Interest income(equity) $1,000
in cash
increase
5. Retained earnings(equity) 2,000
decrease Paid dividends of $2,000 for cash
Cash(asset) 2,000 decrease
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Chapter 3 Assignment
5. Present a journal entry for the following transactions.
Purchased merchandise of $10,000 on credit
Ex.
(Dr.) Inventory 10,000 (Cr.) Accounts payable 10,000
1. Borrowed a bank loan of $20,000
(Dr.) Cash 20,000 (Cr.) Bank loan 20,000
2. Paid accounts payable of $8,000 with cash
(Dr.) Accounts payable 8,000 (Cr.) Cash 8,000
3. Paid interest on a bank loan with cash of $1,000
(Dr.) Interest expense 1,000 (Cr.) Cash 1,000
4. Received cash of $6,000 for accounts receivable.
(Dr.) Cash 6,000 (Cr.) Accounts receivable 6,000
5. Received disaster relief funds of 50,000 from the government
(Dr.) Cash 50,000 (Cr.) Government subsidy 50,000
