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Keystone Computer Timeshare Company entered into the following transactions during May 2022. Describe the effect of each transaction on assets, liabilities, and stockholders' equity. 1. Purchased computers for \( \$ 20,000 \) from Data Equipment on account. \( \square \) 2. Paid \( \$ 3,000 \) cash for May rent on storage space. \( \square \) 3. Received \( \$ 15,000 \) cash from customers for contracts billed in April. \( \square \) 4. Performed computer services for Ryan Construction Company for \( \$ 2,700 \) cash. \( \square \) 5. Paid Midland Power Co. \( \$ 11,000 \) cash for energy usage in May. \( \square \) 6. Stockholders invested an additional \( \$ 32,000 \) in the business. 7. Paid Data Equipment for the computers purchased in (1) above. 8. Incurred advertising expense for May of \( \$ 840 \) on account. eTextbook and Media Save for Later An increase in stockholders' equity and a decrease in liabiliti An increase in assets and a decrease in assets. An increase in assets and an increase in liabilities. A decrease in assets and a decrease in liabilities. A decrease in assets and a decrease in stockholders' equity. An increase in liabilities and a decrease in stockholders' equit An increase in assets and an increase in stockholders' equity.

Ask by Edwards Christensen. in the United States
Jan 21,2025

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Tutor-Verified Answer

Answer

Here's a simplified summary of how each transaction affects the company's assets, liabilities, and stockholders' equity: 1. **Purchased computers on account:** - **Assets:** Increase by \$20,000 (Computers). - **Liabilities:** Increase by \$20,000 (Accounts Payable). - **Stockholders' Equity:** No change. 2. **Paid May rent:** - **Assets:** Decrease by \$3,000 (Cash). - **Liabilities:** No change. - **Stockholders' Equity:** Decrease by \$3,000 (Rent Expense). 3. **Received cash from customers for April contracts:** - **Assets:** Increase by \$15,000 (Cash) and decrease by \$15,000 (Accounts Receivable). - **Liabilities:** No change. - **Stockholders' Equity:** No change. 4. **Performed services for cash:** - **Assets:** Increase by \$2,700 (Cash). - **Liabilities:** No change. - **Stockholders' Equity:** Increase by \$2,700 (Revenue). 5. **Paid Midland Power Co. for energy usage:** - **Assets:** Decrease by \$11,000 (Cash). - **Liabilities:** No change. - **Stockholders' Equity:** Decrease by \$11,000 (Energy Expense). 6. **Stockholders invested additional \$32,000:** - **Assets:** Increase by \$32,000 (Cash). - **Liabilities:** No change. - **Stockholders' Equity:** Increase by \$32,000 (Common Stock). 7. **Paid Data Equipment for computers:** - **Assets:** Decrease by \$20,000 (Cash). - **Liabilities:** Decrease by \$20,000 (Accounts Payable). - **Stockholders' Equity:** No change. 8. **Incurred advertising expense on account:** - **Assets:** No change. - **Liabilities:** Increase by \$840 (Accounts Payable). - **Stockholders' Equity:** Decrease by \$840 (Advertising Expense). **Summary:** - **Increase in Assets:** \$20,000 (Computers), \$32,000 (Investment), \$2,700 (Services), \$840 (Advertising Expense) - **Decrease in Assets:** \$3,000 (Rent), \$11,000 (Energy), \$20,000 (Payment to Data Equipment) - **Increase in Liabilities:** \$20,000 (Accounts Payable), \$840 (Accounts Payable) - **Decrease in Liabilities:** \$20,000 (Accounts Payable) - **Increase in Stockholders' Equity:** \$2,700 (Revenue), \$32,000 (Investment) - **Decrease in Stockholders' Equity:** \$3,000 (Rent), \$11,000 (Energy), \$840 (Advertising Expense) This summary provides a clear overview of how each transaction impacts the company's financial statements.

Solution

Certainly! Below is a detailed description of how each transaction affects **assets**, **liabilities**, and **stockholders' equity** for Keystone Computer Timeshare Company during May 2022: --- ### **1. Purchased computers for \$20,000 from Data Equipment on account.** - **Assets:** **Increases** by \$20,000 (Computers added). - **Liabilities:** **Increases** by \$20,000 (Accounts Payable). - **Stockholders' Equity:** No effect. **Effect:** **An increase in assets and an increase in liabilities.** --- ### **2. Paid \$3,000 cash for May rent on storage space.** - **Assets:** **Decreases** by \$3,000 (Cash outflow). - **Liabilities:** No effect. - **Stockholders' Equity:** **Decreases** by \$3,000 (Rent Expense reduces retained earnings). **Effect:** **A decrease in assets and a decrease in stockholders' equity.** --- ### **3. Received \$15,000 cash from customers for contracts billed in April.** - **Assets:** **Increases** by \$15,000 (Cash received) and **Decreases** by \$15,000 (Accounts Receivable reduced). - **Liabilities:** No effect. - **Stockholders' Equity:** No effect. **Effect:** **An increase in assets and a decrease in assets.** *(Net effect on total assets is zero, but the composition of assets changes.)* --- ### **4. Performed computer services for Ryan Construction Company for \$2,700 cash.** - **Assets:** **Increases** by \$2,700 (Cash received). - **Liabilities:** No effect. - **Stockholders' Equity:** **Increases** by \$2,700 (Revenue increases retained earnings). **Effect:** **An increase in assets and an increase in stockholders' equity.** --- ### **5. Paid Midland Power Co. \$11,000 cash for energy usage in May.** - **Assets:** **Decreases** by \$11,000 (Cash outflow). - **Liabilities:** No effect. - **Stockholders' Equity:** **Decreases** by \$11,000 (Energy Expense reduces retained earnings). **Effect:** **A decrease in assets and a decrease in stockholders' equity.** --- ### **6. Stockholders invested an additional \$32,000 in the business.** - **Assets:** **Increases** by \$32,000 (Cash infusion). - **Liabilities:** No effect. - **Stockholders' Equity:** **Increases** by \$32,000 (Common Stock or Additional Paid-In Capital). **Effect:** **An increase in assets and an increase in stockholders' equity.** --- ### **7. Paid Data Equipment for the computers purchased in (1) above.** - **Assets:** **Decreases** by \$20,000 (Cash outflow). - **Liabilities:** **Decreases** by \$20,000 (Accounts Payable settled). - **Stockholders' Equity:** No effect. **Effect:** **A decrease in assets and a decrease in liabilities.** --- ### **8. Incurred advertising expense for May of \$840 on account.** - **Assets:** No immediate effect. - **Liabilities:** **Increases** by \$840 (Accounts Payable). - **Stockholders' Equity:** **Decreases** by \$840 (Advertising Expense reduces retained earnings). **Effect:** **An increase in liabilities and a decrease in stockholders' equity.** --- ### **Summary Table** | **Transaction** | **Assets** | **Liabilities** | **Stockholders' Equity** | **Effect Description** | |-----------------|-----------------------------|---------------------------------|---------------------------------------------|--------------------------------------------------------| | 1. Purchase | ↑ Computers (+\$20,000) | ↑ Accounts Payable (+\$20,000) | No Effect | Increase in assets and an increase in liabilities. | | 2. Rent Payment | ↓ Cash (−\$3,000) | No Effect | ↓ Rent Expense (−\$3,000) | Decrease in assets and a decrease in stockholders' equity. | | 3. Cash Receipt | ↑ Cash (+\$15,000) & ↓ A/R (−\$15,000) | No Effect | No Effect | Increase in assets and a decrease in assets. | | 4. Services | ↑ Cash (+\$2,700) | No Effect | ↑ Revenue (+\$2,700) | Increase in assets and an increase in stockholders' equity. | | 5. Energy Payment | ↓ Cash (−\$11,000) | No Effect | ↓ Energy Expense (−\$11,000) | Decrease in assets and a decrease in stockholders' equity. | | 6. Investment | ↑ Cash (+\$32,000) | No Effect | ↑ Common Stock (+\$32,000) | Increase in assets and an increase in stockholders' equity. | | 7. Payment to Data Equipment | ↓ Cash (−\$20,000) | ↓ Accounts Payable (−\$20,000) | No Effect | Decrease in assets and a decrease in liabilities. | | 8. Advertising Expense | No Effect | ↑ Accounts Payable (+\$840) | ↓ Advertising Expense (−\$840) | An increase in liabilities and a decrease in stockholders' equity. | --- This breakdown should help you understand the impact of each transaction on the company's financial position.

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Extra Insights

When Keystone Computer Timeshare Company purchased computers for $20,000 on account, it increased assets (computers) and increased liabilities (accounts payable) simultaneously. Think of it as acquiring new toys, but also taking on a bit of a promise to pay for them later! As for the stockholders investing an additional $32,000, this fantastic transaction boosted both assets (cash) and stockholders' equity. It’s like the shareholders tossed in some extra cash to fuel the company's engine, making things a bit more exciting on the balance sheet!

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