Following are the transactions of dennen, inc., for the month of january. borrowed $30,000 from a local bank. lent $10,000 to an affiliate; accepted a note due in one year. sold to investors 100 additional shares of stock with a par value of $0.10 per share and a market price of $5 per share; received cash. purchased $15,000 of equipment, paying $5,000 cash and signing a note for the rest due in one year. declared and paid $2,000 in dividends to stockholders. for each of the above transactions of dennen, inc., for the month of january, indicate the accounts, amounts, and direction of the effects (+ for increase and − for decrease) on the accounting equation.

(A) Cash +30,000 Dr

(L) Notes payable +30,000 Cr

(A) Notes receivable +10,000 Dr

(A) Cash - 10,000 Cr

(A) Cash +500 Dr

(S) Common stock +10 Cr

(S) Additional paid-­in capital +490 Cr

(A) Equipment +15,000 Dr

(A) Cash -5,000 Cr

(L) Notes payable +10,000 Cr

(A) Cash -2,000 Cr

(S) Retained earnings -2,000 Dr

Explanation:

(A) = Assets

(L) = Liabilities

(S) = Stockholders' Equity

(A) = (L) + (S)

Borrowed $30,000 from a local bank.  

A bank loan is a cash debit with liabilities credit

(A) Cash +30,000 Dr

(L) Notes payable +30,000 Cr

Lent $10,000 to an affiliate; accepted a note due in one year.

Two assets are involved in the operation: the first is the receivable that was accepted for one year, and the second is a cash outflow

(A) Notes receivable +10,000 Dr

(A) Cash - 10,000 Cr

Sold to investors 100 additional shares of stock with a par value of $0.10 per share and a market price of $5 per share; received cash.

The sale of 100 shares at $5 (market price) each is a cash debit of 100 x $5 = $500. A credit must be made to the "Common Stock" account of the number of shares for the nominal value, that is 100 x $0.10 = $10; Finally, a credit is made to the "Additional paid-in capital" account for the difference between $500 and $10, that is $490.

(A) Cash +500 Dr

(S) Common stock +10 Cr

(S) Additional paid-­in capital +490 Cr

Purchased $15,000 of equipment, paying $5,000 cash and signing a note for the rest due in one year.

Three accounts are affected in the operation: Equipment has a debit of $15,000 which is its purchase value; then there is a $5,000 cash credit that was paid in cash; and a Note payable from the rest, that is a credit of $10,000 ($15,000 - $5,000).

(A) Equipment +15,000 Dr

(A) Cash -5,000 Cr

(L) Notes payable +10,000 Cr

Declared and paid $2,000 in dividends to stockholders.

A debit of $ 2,000 is made to retained earnings to deduct your balance; then a credit or cash out is made for the same amount $ 2,000 that was paid.

(A) Cash -2,000 Cr

(S) Retained earnings -2,000 Dr

Hope this helps!

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