Analyze each transaction and indicate its effect

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Reference no: EM13943805

ANALYZING THE ACCOUNTS

The controller for Summit Sales, Inc., provides the following information on transac- tions that occurred during the year:

a. Purchased supplies on credit, $30,000

b. Paid $22,600 cash toward the purchase in transaction a

c. Provided services to customers on credit, $37,800

d. Collected $47,000 cash from accounts receivable
e. Recorded depreciation expense, $7,350

f. Employees earned salaries, $9,200

g. Paid $9,200 cash to employees for salaries earned

h. Accrued interest expense on long-term debt, $2,400

i. Paid a total of $15,000 on long-term debt, that includes $2,400 interest from trans- action h

j. Paid $1,850 cash for one-year's insurance coverage in advance

k. Recognized insurance expense, $925, that was paid in a previous period

l. Sold old equipment with a book value of $3,900 for $3,900 cash

m. Declared cash dividend, $5,000

n. Paid cash dividend declared in transaction m

o. Purchased new equipment for $14,300 cash

p. Issued common stock for $20,000 cash

q. Used $28,100 of supplies to produce revenues

Summit Sales, Inc., uses the indirect method to prepare its statement of cash flows.

Required:

1. Construct a table similar to the one shown. Analyze each transaction and indicate its effect on the fundamental accounting equation. If the transaction increases a financial statement element, write the amount of the increase preceded by a plus sign (+) in the appropriate column. If the transaction decreases a financial statement element, write the amount of the decrease preceded by a minus sign (-) in the appropriate column.

2. Indicate whether each transaction results in a cash inflow or a cash outflow in the ‘‘Effect on Cash Flows'' column. If the transaction has no effect on cash flow, then indicate this by placing ‘‘none'' in the ‘‘Effect on Cash Flows'' column.

3. For each transaction that affected cash flows, indicate whether the cash flow would be classified as a cash flow from operating activities, a cash flow from investing activities, or a cash flow from financing activities. If there is no effect on cash flows, indi- cate this as a noncash activity.

Reference no: EM13943805

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