Analyzing the Effect of Transactions Purpose of Assignment The purpose of this assignment is to help you become familiar with examining transactions and how it affects the balance sheet. Assignment Steps Resources: Financial Accounting: Tools for Business Decision Making Write a minimum 150-word response to each of the following scenarios from Exercise E3-1 in Financial Accounting (p. 132) describing the effect of each transaction on assets, liabilities, and stockholder’s equity: Selected transactions for Thyme Advertising Company, Inc. Issued common stock to investors in exchange for cash received from investors. Paid monthly rent. Received cash from customers when service was performed. Billed customers for services performed. Paid dividend to stockholders. Incurred advertising expense on account. Received cash from customers billed in (4). Purchased additional equipment for cash. Purchased equipment on account. Use the Excel® spreadsheet to record your answers and submit with your responses. Financial Accounting, Ch. 3: The Accounting Information System Read Ch. 3 of Financial Accounting. Consider the following as you read: In the 1400’s, Luca Pacioli, who is known as the father of accounting, introduced the world to a better understanding of accounting and the double entry accounting system through his book, Summa de Arithmetical, Geometric, Proportion et Proportionality. Today, the same principles and concepts keep many companies around the world well informed of their financial standing: How are business events captured for reporting? What is the ultimate purpose of communicating accounting information? EXERCISES Analyze the effect of transactions. (LO 1), C E3-1 Selected transactions for Thyme Advertising Company, Inc. are listed here. Issued common stock to investors in exchange for cash received from investors. Paid monthly rent. Received cash from customers when service was performed. Billed customers for services performed. Paid dividend to stockholders. Incurred advertising expense on account. Received cash from customers billed in (4). Purchased additional equipment for cash. Purchased equipment on account. Instructions Describe the effect of each transaction on assets, liabilities, and stockholders’ equity. For example, the first answer is (1) Increase in assets and increase in stockholders’ equity. Analyze the effect of transactions on assets, liabilities, and stockholders’ equity. (LO 1), AP

Financial Accounting

1. In order to generate more cash that can be used to expand operation and fiancé other production activities, common stock is issued by company as a means of generating extra capital. In this case, when issuing common stock in exchange with cash, the two sides of the balance sheet will be affected and therefore, in the right hands side, the assets will increase since the cash that is generated from the issued stock will be recorded as asset. On the other hand, the common stock or shared issued will be recorded on the right hand side of the balance sheet under equity.  For the two sides to balance, the liabilities will be as zero while the stockholder equity account will contain the value of the common stock that is issued for purchase.
2. The monthly rent paid is recorded as expenses.  On the right side of the balance sheet the rent paid is recorded under current liabilities.  In this case, the company records the cash on the right side of the balance sheet; however, the amount to be paid as rent is then debited from the assets and recorded on the right side of the balance sheet under expenses. In order to ensure that the accounts are balanced, the stockholders equity account will have zero values and therefore, the amount debited from the assets should be equal to the amount recorded as rent payable in the liabilities.
3. In the operation of the company, all services that are rendered to the customers are paid and therefore, the payment given out by customers is recorded under account receivable. Account receivables refer to the cash that is gained from either sales or operation of the company. In this case, to ensure that the two sides of the balance sheet are balanced, the right side of the balance sheet will be debited under the revenues accounts which will contain the same value of the cash received from the customers.
4. The billed accounts for the services  performed to customers is recorded as expenses under retained earning which in this case, the  cash has not yet been collected by the company. The payment for such services can be made within a specific timeframe which is the collecting period. After collection, the amount will be recorded under account receivables. But in this case, the company would have to record zero value on the side of assets and the accounts to be collected on the side of liabilities. Furthermore, the stockholder equity account would have a zero value in order to make the two sides balance.
5. The paid dividends are recorded on the right side of the balance sheet under the stockholders equity. Dividends are paid based on the stock that the company issued and they are paid to the shareholders who purchased the stocks. They are derived from the amount of cash generated after the issuance of stock and at the issuance of the dividends, which is a share of the profit the company gets after investing the cash from the stock. In this regard, the cash accounts on the assets side are reduced and the dividends account on the stockholders side is credited.  Dividends are paid based on the amount of profit the company generates. For instance, the higher the profit, the higher the dividends the company pays to the shareholders and conversely.
6. In a case whereby the company incurs advertisement costs from its accounts, this plies that the cost is not paid in cash at the time of advertisement but it is paid on a later date. In this regard, the assets accounts on the left records a debit which will become effective at the day of payment while the right side of the balance sheet records a credit that will become effective when payment is made. In either case, the cash account is reduced while the account payable is credited. For instance, such expenses are recorded under current liabilities since they are subject being met in the short run. However in case any given company decides to increase advertisement expenses without tangible returns or targeting a market segment that does not bring any return, it would ultimately lead the company to have low cash and receivables and also it can lead to having more current liabilities hence low profitability.
7. The cash received from customers billed in option four is recorded under account receivables. This means that the account payable will reduce and the account receivable will increase. However, the effectiveness of receiving the cash from the customer billed will only rely on the number of collection days that the company is able to use to ensure that all unpaid dues are received by the company on time. In this regard, the lower the number of days the company uses to collect sales or services provided to customers s key determinant on the company’s efficiency in making collection of its billed expenses.
8. Purchasing additional equipment on cash would imply that the company will spend more cash which will result into debiting of the cash accounts on from the assets and crediting of the accounts payable on the liability side. In such a case, the company will also consider not only the value of the equipment but also the rate of deprecation relative to its expected life. Again, the other consideration in regard to the purchase of the equipment on cash is whether the operation of the equipment would generate returns to cover the amount used to purchase it on the short run or long run. In a situation whereby the equipment would not be able to generate the invested amount before its useful life, the company would be obliged to incur more cost in purchasing equipment which will affect the value of the assets owned by the firm.
9. In regard to purchasing another equipment on account, this would mean that the company will acquire the equipment before making its payment and therefore, the due cist of the equipment will be recorded on the right side of the balance sheet and on the asset side, the cist will be debited at the time of payment and credited on the side of liabilities. Such types of purchases are considered current liabilities since the company is obliged to make their payment on the short run. Therefore, when the due time comes, the cash on the asset side will decrease while the liabilities increase.