During 2022, its first year of operations as a delivery service, Flounder Corp. entered into the following transactions. 1. Issued shares of common stock to investors in exchange for $137,000 in cash.
2. Borrowed $55,000 by issuing bonds.
3. Purchased delivery trucks for $63,000 cash.
4. Received $18,000 from customers for services performed.
5. Purchased supplies for $6,600 on account.
6. Paid rent of $5,900.
7. Performed services on account for $10,700.
8. Paid salaries of $26,700.
9. Paid a dividend of $11,500 to shareholders.

Using the following tabular analysis, show the effect of each transaction on the accounting equation. Put explanations for changes to Stockholders’ Equity in the far right column. (If a transaction causes a decrease in Assets, Liabilities or Stockholders' Equity, place a negative sign (or parentheses) in front of the amount entered for the particular Asset, Liability or Equity item that was reduced, see Illustration 3-4 for example.)

Flounder Corp.

The Effect of Each Transaction on the Accounting Equation:

1. Issued shares of common stock to investors in exchange for $137,000 in cash.

Assets (Cash +$137,000) = Liabilities + Equity (Common Stock +$137,000))

2. Borrowed $55,000 by issuing bonds.

Assets (Cash +$55,000) = Liabilities (Bonds Payable +$55,000) + Equity

3. Purchased delivery trucks for $63,000 cash.

Assets (Cash -$63,000; Trucks +$63,000) = Liabilities + Equity

4. Received $18,000 from customers for services performed.

Assets (Cash +$18,000) = Liabilities + Equity (Retained Earnings +$18,000)

5. Purchased supplies for $6,600 on account.

Assets (Supplies +$6,600) = Liabilities (Accounts Payable +$6,600) + Equity

6. Paid rent of $5,900.

Assets (Cash -$5,900) = Liabilities + Equity (Retained Earnings -$5,900)

7. Performed services on account for $10,700.

Assets (Accounts Receivable +$10,700) = Liabilities + Equity (Retained Earnings +$10,700)

8. Paid salaries of $26,700.

Assets (Cash -$26,700) = Liabilities + Equity (Retained Earnings -$26,700)

9. Paid a dividend of $11,500 to shareholders.

Assets (Cash -$11,500) = Liabilities + Equity (Retained Earnings  -$11,500)

Explanation:

The accounting equation states that Assets = Liabilities + Equity.  This equation is the basis of the double system of recording accounting transaction.  It shows that assets are funded by either liabilities or equity or a combination of the two.  With this equation, every transaction is recorded twice on either side of the equation or on one side, as the case may be.  The equation is always in balance because transactions are entered twice.

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