Question

The following table shows the effects of five transactions (1 through 5) on the assets, liabilities, and equity of Mulan’s Boutique.

Assets = Liabilities + Equity

Cash + Accounts + Office + Land = Accounts + Common + Revenues Receivable Supplies Payable Stock

\( 21,000 + \) 0 + \(3,000 + \)19,000 = \( 0 + \)43,000 + \( 0

1. − 4,000 + 4,000

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 \)1,000 of office supplies on credit.

b. The company collected \(1,900 cash from an account receivable.

c. The company sold land for \)4,000 cash.

d. The company paid \(1,000 cash in dividends to shareholders.

e. The company purchased office supplies for \)1,000 cash.

f. The company purchased land for \(4,000 cash.

g. The company billed a client \)1,900 for services provided.

h. The company paid \(1,000 cash toward an account payable.

i. The owner invested \)1,900 cash in the business in exchange for its common stock.

j. The company sold office supplies for $1,900 on credit.

Short answer

Cash and cash equivalent covers cash and some marketable securities and the correct explanation for the transaction is explanation F.

Step-by-step solution

Definition of cash and cash equivalent

Cash and cash equivalent are defined as the item of the balance sheet which covers the cash and some current assets which can be converted into cash instantly.

Explanation for the correct answer

In the accounting equation, it is observable that the cash is decreasing by the amount of $4,000 and the land item is increasing by the amount of $4,000. This means the company purchased land worth $4,000 using $4,000 cash. Hence, the correct explanation for this transaction will be the explanation F