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

5. + 1,900 − 1,900

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

Current assets are the assets that can get used up in one accounting period and the correct explanation will be explanation B

Step-by-step solution

Definition of Current Assets

The currents assets are defined as the assets of the company which are consumed or used up during the one accounting period.

Explanation for the correct answer

In the accounting equation, in the asset section, the accounts receivables are decreased by the amount of $1,900, and the cash is increased by the amount of $1,900. This shows that the amount is received from accounts receivables. Hence, the correct explanation will be the B explanation.