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

4. − 1,000 − 1,000

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

Liabilities are claims of creditors on assets of the company and the correct explanation will be explanation H

Step-by-step solution

Definition of Liabilities

The liabilities are defined as any amount owed by the company to the outside parties for the acquisition of assets.

Explanation for the correct answer

In the accounting equation, in the asset section, the cash item is decreasing with the amount of $1,000 and the accounts payable is also decreasing with the same amount of $1,000. This shows the cash payment of accounts payables by the business. Hence, the correct explanation will be explanation H