Question

Ming Chen began a professional practice on June 1 and plans to prepare financial statements at the end of each month. During June, Ming Chen (the owner) completed these transactions.

a. Owner invested \(60,000 cash in the company along with equipment that had a \)15,000 market value in exchange for its common stock.

b. The company paid \(1,500 cash for rent of office space for the month.

c. The company purchased \)10,000 of additional equipment on credit (payment due within 30 days).

d. The company completed work for a client and immediately collected the \(2,500 cash earned.

e. The company completed work for a client and sent a bill for \)8,000 to be received within 30 days.

f. The company purchased additional equipment for \(6,000 cash.

g. The company paid an assistant \)3,000 cash as wages for the month.

h. The company collected \(5,000 cash as a partial payment for the amount owed by the client in transaction e.

i. The company paid \)10,000 cash to settle the liability created in transaction c.

j. The company paid $1,000 cash in dividends to the owner (sole shareholder). Required Create the following table similar to the one in Exhibit 1.9.

Assets = Liabilities + Equity Cash + Accounts + Equipment = Accounts + Common – Dividends + Revenues – Expenses Receivable Payable Stock

Then use additions and subtractions to show the dollar effects of the transactions on individual items of the accounting equation. Show new balances after each transaction.

Short answer

Equity is owner’s claim on assets of the business and the required accounting equation is prepared.

Step-by-step solution

Definition of equity

Equity is defined as the claim of the owners of the business on the assets of the business.

Preparation of accounting equation

	Assets	=	Liabilities	+	Equity
S no.	Cash	AR	Equipment		AP		Common stock	Dividends	Revenue	Expenses
A	60,000		15,000				75,000
B	-1,500									-1,500
C			10,000		10,000
D	2,500								2,500
E		8,000							8,000
F	-6,000		6,000
G	-3,000									-3,000
H	5,000	-5,000
I	-10,000				-10,000
J	-1,000							-1,000
	46,000	3,000	31,000		0		75,000	-1,000	10,500	-4,500