Kenisha Morgan owns and operates Morgan's Furniture Emporium, Inc. The balance sheet totals for assets, liabilities, and owners' equity at August 1, 2009, are as indicated. Described here are several transactions entered into by the company throughout the month of August.
Required:
a. Indicate the amount and effect (+ or -) of each transaction on total assets, total liabilities, and total owners' equity, and then compute the new totals for each category. The first transaction is provided as an illustration.
Assets Liabilities Owners Equity
August 1, 2009, totals $700,000 $550,000 $150,000
August 3, borrowed $24,000
in cash from the bank +24,000 +24,000
New totals $724,000 $574,000 $150,000
August 7, bought merchandise inventory valued at
$38,000 on account
New totals _____ ______ _______
August 10, paid $14,000 cash for operating expenses
New totals _____ ______ _______
August 14, received $100,000 in cash from sales of
merchandise that had cost $66,000 ____ ______ _______
New totals ______ ______ _______
August 17, paid $28,000 owed on accounts payable
New totals ______ ______ _______
August 21, collected $34,000 of accounts receivable
New totals ______ ______ _______
August 24, repaid $20,000 to the bank plus $400 interest
New totals ______ ______ _______
August 29, paid Kenisha Morgan a cash dividend of $10,000
New totals ______ ______ _______
b. What was the amount of net income (or loss) during August? How much
were total revenues and total expenses during August?
c. What were the net changes during the month of August in total assets, total liabilities, and total owners' equity?
d. Explain to Kenisha Morgan which transactions caused the net change in her owners' equity during August.
e. Explain why dividend payments are not an expense, but interest is an expense.
f. Explain why the money borrowed from the bank increased assets but did not increase net income.
g. Explain why paying off accounts payable and collecting accounts receivable do not affect net income.