Effect on assets, liabilities, and equity
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Indicate the net effect on assets, liabilities, and owners' equity resulting from each of the following transactions:
1. Capital stock was issued for $100,000 cash.
2. Bonds payable of $25,000 were refunded with capital stock.
3. Depreciation on plant and equipment equaled $8,500 for the year.
4. Inventory was purchased for $15,900 cash.
5. $9,400 worth of inventory was purchased on credit.
6. Inventory costing $4,500 was sold for $7, 200 on credit.
7. $3,500 in cash was received for merchandise sold on credit.
8. Dividends of $3,000 were declared.
9. The declared dividends of $3,000 were paid.
10. The company declared a stock split, and replaced each outstanding share with two new shares.
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Solution Summary
The solution explains the effect on assets, liabilities, and equity of the given transactions
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1. Capital stock was issued for $100,000 cash.
This will increase assets (cash) by 100,000 and increase equity by 100,000
2. Bonds payable of $25,000 were refunded with capital stock.
This will decrease liabilities (bonds payable) by 25,000 and increase equity (capital stock) by 25,000
3. Depreciation on plant and equipment equaled $8,500 for the year.
This will reduce assets (through accumulated depreciation) by 8,500 and reduce equity ...
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