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Exercise [tex]$2-4$[/tex] (Static)
Analyze the impact of transactions on the accounting equation (LO2-2)

Boilermaker House Painting Company incurs the following transactions for September.

Required:
For each transaction, describe the dual effect on the accounting equation. For example, for the first transaction, (1) assets increase and (2) stockholders' equity increases.

\begin{tabular}{|l|l|}
\hline
\multicolumn{1}{|c|}{Transactions} & \multicolumn{1}{c|}{Dual Effect} \\
\hline
1. Paint houses in the current month for [tex]$\$[/tex]15,000[tex]$ on account. & Assets increase and stockholders' equity increases. \\
\hline
2. Purchase painting equipment for $[/tex]\[tex]$16,000$[/tex] cash. & Assets decrease and stockholders' equity decreases. \\
\hline
3. Purchase office supplies on account for [tex]$\$[/tex]2,500[tex]$. & Assets increase and liabilities increase. \\
\hline
4. Pay employee salaries of $[/tex]\[tex]$3,200$[/tex] for the current month. & Assets decrease and stockholders' equity decreases. \\
\hline
5. Purchase advertising to appear in the current month, [tex]$\$[/tex]1,200[tex]$. & Assets decrease and stockholders' equity decreases. \\
\hline
6. Pay office rent of $[/tex]\[tex]$4,400$[/tex] for the current month. & Assets decrease and stockholders' equity decreases. \\
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7. Receive [tex]$\$[/tex]10,000[tex]$ from customers in (1) above. & Assets increase and liabilities decrease. \\
\hline
\begin{tabular}{l}
8. Receive cash of $[/tex]\[tex]$5,000$[/tex] in advance from a customer who plans to have his house \\
painted in the following month.
\end{tabular} & Assets increase and liabilities increase. \\
\hline
\end{tabular}



Answer :

GinnyAnswer
Let's analyze the impact of each transaction on the accounting equation, which is Assets = Liabilities + Stockholders' Equity. Each transaction will affect at least two of these components.

### Transaction Analysis:

#### 1. Paint houses in the current month for [tex]$15,000 on account. - Assets: Increase by $[/tex]15,000 (accounts receivable)
- Stockholders' Equity: Increase by [tex]$15,000 (revenue increases net income, thereby increasing stockholders' equity) Dual Effect: Assets increase and stockholders' equity increases. #### 2. Purchase painting equipment for $[/tex]16,000 cash.
- Assets: Decrease by [tex]$16,000 (cash decreases) - Stockholders' Equity: Decrease by $[/tex]16,000 (expense reduces net income, thereby decreasing stockholders' equity)

Dual Effect: Assets decrease and stockholders' equity decreases.

#### 3. Purchase office supplies on account for [tex]$2,500. - Assets: Increase by $[/tex]2,500 (office supplies)
- Liabilities: Increase by [tex]$2,500 (accounts payable) Dual Effect: Assets increase and liabilities increase. #### 4. Pay employee salaries of $[/tex]3,200 for the current month.
- Assets: Decrease by [tex]$3,200 (cash decreases) - Stockholders' Equity: Decrease by $[/tex]3,200 (expense reduces net income, thereby decreasing stockholders' equity)

Dual Effect: Assets decrease and stockholders' equity decreases.

#### 5. Purchase advertising to appear in the current month for [tex]$1,200. - Assets: Decrease by $[/tex]1,200 (cash decreases)
- Stockholders' Equity: Decrease by [tex]$1,200 (expense reduces net income, thereby decreasing stockholders' equity) Dual Effect: Assets decrease and stockholders' equity decreases. #### 6. Pay office rent of $[/tex]4,400 for the current month.
- Assets: Decrease by [tex]$4,400 (cash decreases) - Stockholders' Equity: Decrease by $[/tex]4,400 (expense reduces net income, thereby decreasing stockholders' equity)

Dual Effect: Assets decrease and stockholders' equity decreases.

#### 7. Receive [tex]$10,000 from customers in (1) above. - Assets: Increase by $[/tex]10,000 (cash increases)
- Liabilities: Decrease by [tex]$10,000 (accounts receivable decreases) Dual Effect: Assets increase and liabilities decrease. #### 8. Receive cash of $[/tex]5,000 in advance from a customer who plans to have his house painted in the following month.
- Assets: Increase by [tex]$5,000 (cash increases) - Liabilities: Increase by $[/tex]5,000 (unearned revenue, a liability, increases)

Dual Effect: Assets increase and liabilities increase.

Each transaction has been described with its corresponding dual effect on the accounting equation.

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