Mgt 210

Exercise 3-1 Types of Events

For each of the following events, identify whether it is an external event that would be recorded as a transaction (E), an internal event that would be recorded as a transaction (I), or not recorded (NR).

E (EXTERNAL)1. A vendor for a company’s supplies is paid an amount owed on account.

I (INTERNAL) 2. A customer pays its open account.

NR (NOT RECORDED) 3. A new chief executive officer is hired.

I (INTERNAL) 4. The biweekly payroll is paid.

I (INTERNAL) 5. Depreciation on equipment is recognized.

NR ( NOT RECORDED) 6. A new advertising agency is hired to develop a series of newspaper ads for the company.

E (EXTERNAL) 7. The advertising bill for the first month is paid.

I (INTERNAL) 8. The accountant determines the federal income taxes owed based on the income earned during the period.

Exercise 3-3 The Effect of Transactions on the Accounting Equation

For each of the following transactions, indicate whether it increases (I), decreases (D), or has no effect (NE) on the total dollar amount of each of the elements of the accounting equation.

Problem 3-2 Transaction Analysis and Financial Statements

Just Rolling Along Inc. was organized on May 1, 2012, by two college students who recognized an opportunity to make money while spending their days at a beach along Lake Michigan. The two entrepreneurs plan to rent bicycles and in-line skates to weekend visitors to the lakefront.

The following transactions occurred during the first month of operations:

May 1: Received contribution of $9,000 from each of the two principal owners of the new business in exchange for shares of stock.

May 1: Purchased ten bicycles for $300 each on an open account. The company has 30 days to pay for the bicycles.

May 5: Registered as a vendor with the city and paid the $15 monthly fee.

May 9: Purchased 20 pairs of in-line skates at $125 per pair, 20 helmets at $50 each, and 20 sets of protective gear (knee and elbow...