QUESTION 2: TRANSACTION ANALYSIS AND BALANCE DAY ADJUSTMENTS

The balance date for this company is 31st March 2020. You are to record the effect of each transaction on the extended accounting equation using the table on the below. Include all balance day adjustments where applicable. The first example illustrates how you would record the answers on the table.

1. Purchased inventory for $55,000. Paid half upon the receipt of the inventory and the remainder on credit. 

a. Depreciate the equipment at balance date. Cost of equipment is $40,000 and the expected salvage value at the end of 5 years is $5,000. The equipment was purchased on 1st September 2019. Use the straight line depreciation for this business.

b. Sold an old equipment for $12,000. The cost of the equipment was $50,000 and it has an accumulated depreciation to date of $42,000. 

c. Paid the supplier promptly as a 10% discount was offered for an amount owing of $10,000. 

d. Paid the annual insurance of $24,000 on 1st Feb 2020. 

e. Invested $20,000 with the bank on 1st January 2020 with an interest rate of 3.5% per annum. The interest was shown in the business bank account on 2nd April 2020. 

f. Sold inventory on credit for $17,000 (cost is $9,000). 

g. Weekly wages of $50,000 was paid on 3rd April 2020. The wages was for the period 29th March to 2nd April 2020. 

h. Repaid the bank loan: $50,000 principal and $4,000 interest. 

i. Received from debtor the full amount owing of $17,000 less 3% discount for early repayment. 

j. Received $5,000 deposit from a supplier on 1st March 2020 for the sale of inventory to be delivered on 7th April 2020. 

k. Dividends paid to the owners of $2,000.  

QUESTION 2: TRANSACTION ANALYSIS

Extended Accounting Equation: Asset + Expenses = Liabilities + Equity + Revenue

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