Question

Zen began a new consulting firm on January 5. Following is a financial summary, including balances, for each of the company’s first five transactions (using the accounting equation form).

Assets = Liabilities + Equity

Transaction Cash + Accounts + Office + Office = Accounts + Common + Revenues Receivable Supplies Furniture Payable Stock

3. 30,000 + 0 + 3,000 + 8,000 = 1,000 + 40,000 + 0

Identify the explanation from a through j below that best describes each transaction 1 through 5 above and enter it in the blank space in front of each numbered transaction.

a. The company purchased office furniture for \(8,000 cash.

b. The company received \)40,000 cash from a bank loan.

c. The owner invested \(1,000 cash in the business in exchange for its common stock.

d. The owner invested \)40,000 cash in the business in exchange for its common stock.

e. The company purchased office supplies for \(3,000 by paying \)2,000 cash and putting \(1,000 on credit.

f. The company billed a customer \)6,000 for services provided.

g. The company purchased office furniture worth \(8,000 on credit.

h. The company provided services for \)1,000 cash.

i. The company sold office supplies for \(3,000 and received \)2,000 cash and \(1,000 on credit.

j. The company provided services for \)6,000 cash

Short answer

Fixed assets are the tangible assets and the correct explanation for the transaction is explanation A

Step-by-step solution

Definition of Fixed Assets

Fixed assets are defined as the assets which are of tangible nature that are owned by the business organizations for example furniture, equipment, etc.

Explanation for the correct option

In the accounting equation, the cash item of the asset column is decreased by the amount of $8,000, and office furniture shows an increase of $8,000. This means that the firm has purchased office furniture worth $8,000 using cash. Hence, the correct explanation will be Explanation A