# indicate the amount and effect or minus of each transaction on total assets total li 636422

Transaction analysis—quantitative; analyze results Kenisha Morgan owns and operates Morgan’s Furniture Emporium, Inc. The balance sheet totals for assets, liabilities, and owner’s equity at August 1, 2010, 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 owner’s equity, and then compute the new totals for each category. The first transaction is provided as an illustration.

 Owner’s Assets Liabilities Equity August 1, 2010, 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 owner’s equity?

d. Explain to Kenisha Morgan which transactions caused the net change in her owner’s 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.