Problem 2

A company had the following transactions during the month:

1. Bought equipment for 8,000, paid 2,000 in cash, and financed the rest with a loan.

2. Paid off 1,500 of an existing liability.

How do these transactions affect the accounting equation?

Problem 3
Given:
- Starting Assets = 60,000
- Starting Liabilities = 25,000
- Revenue earned during the year = 30,000
- Expenses incurred during the year = 15,000

Find:
- Ending Owner's Equity

---

Problem 4
A company starts with:
- Assets = 40,000
- Liabilities = 25,000
- Owner’s Equity = 15,000

During the year:
- The company earned 20,000 in revenue.
- It paid 5,000 in expenses.
- The owner withdrew 3,000.

Find:
- Ending Assets and Owner’s Equity

Let's solve each problem step-by-step.

### Problem 2: Effect of Transactions on the Accounting Equation

The accounting equation is:

\[
\text{Assets} = \text{Liabilities} + \text{Owner's Equity}
\]

Let's analyze the effect of each transaction on this equation.

1. **Bought equipment for 8,000, paid 2,000 in cash, and financed the rest with a loan:**

   - **Assets:** Equipment increases by 8,000, but cash decreases by 2,000. The net increase in assets is \(8,000 - 2,000 = 6,000\).
   - **Liabilities:** A loan is taken for the remaining 6,000, increasing liabilities by 6,000.
   - **Owner's Equity:** No effect on owner's equity.

   The accounting equation remains balanced:

   \[
   \text{Increase in Assets (6,000)} = \text{Increase in Liabilities (6,000)}
   \]

2. **Paid off 1,500 of an existing liability:**

   - **Assets:** Cash decreases by 1,500.
   - **Liabilities:** Liabilities decrease by 1,500.
   - **Owner's Equity:** No effect on owner's equity.

   The accounting equation remains balanced:

   \[
   \text{Decrease in Assets (1,500)} = \text{Decrease in Liabilities (1,500)}
   \]

### Problem 3: Calculating Ending Owner's Equity

Given:
- Starting Assets = 60,000
- Starting Liabilities = 25,000
- Revenue earned during the year = 30,000
- Expenses incurred during the year = 15,000

To find the ending Owner's Equity, we use the formula:

\[
\text{Ending Owner's Equity} = \text{Starting Owner's Equity} + \text{Net Income} - \text{Owner Withdrawals}
\]

1. **Calculate Net Income:**

\[
\text{Net Income} = \text{Revenue} - \text{Expenses} = 30,000 - 15,000 = 15,000
\]

2. **Calculate Starting Owner's Equity:**

\[
\text{Starting Owner's Equity} = \text{Assets} - \text{Liabilities} = 60,000 - 25,000 = 35,000
\]

3. **Calculate Ending Owner's Equity:**

\[
\text{Ending Owner's Equity} = 35,000 + 15,000 = 50,000
\]

### Problem 4: Calculating Ending Assets and Owner’s Equity

Given:
- Starting Assets = 40,000
- Starting Liabilities = 25,000
- Starting Owner’s Equity = 15,000
- Revenue earned = 20,000
- Expenses paid = 5,000
- Owner withdrew = 3,000

1. **Calculate Net Income:**

\[
\text{Net Income} = \text{Revenue} - \text{Expenses} = 20,000 - 5,000 = 15,000
\]

2. **Calculate Change in Owner’s Equity:**

\[
\text{Change in Owner’s Equity} = \text{Net Income} - \text{Owner Withdrawals} = 15,000 - 3,000 = 12,000
\]

3. **Calculate Ending Owner’s Equity:**

\[
\text{Ending Owner’s Equity} = \text{Starting Owner’s Equity} + \text{Change in Owner’s Equity} = 15,000 + 12,000 = 27,000
\]

4. **Calculate Ending Assets:**

   Since there is no change in liabilities and the only changes are through owner's equity:

\[
\text{Ending Assets} = \text{Ending Owner’s Equity} + \text{Liabilities} = 27,000 + 25,000 = 52,000
\]

### Summary of Results

- **Problem 2:** Transactions have the following effects:
  1. Increase in assets and liabilities by 6,000 each.
  2. Decrease in assets and liabilities by 1,500 each.
- **Problem 3:** Ending Owner's Equity = 50,000.
- **Problem 4:** Ending Assets = 52,000, Ending Owner’s Equity = 27,000.

Would you like further details or have any questions about these solutions?

### Follow-Up Questions:

1. How do different types of transactions (e.g., expenses, revenues, loans) affect the accounting equation?
2. What are other ways to calculate owner’s equity if given different financial elements?
3. How do withdrawals by the owner impact the balance sheet and owner’s equity?
4. How does the payment of liabilities affect the liquidity of a company?
5. What are some common mistakes made when recording transactions in accounting?

**Tip:** Always ensure the accounting equation remains balanced after every transaction to verify the accuracy of entries.

A company had the following transactions during the month:
1. Bought equipment for 8,000, paid 2,000 in cash, and financed the rest with a loan.
2. Paid off 1,500 of an existing liability.

How do these transactions affect the accounting equation?

Given:
- Starting Assets = 60,000
- Starting Liabilities = 25,000
- Revenue earned during the year = 30,000
- Expenses incurred during the year = 15,000

Find:
- Ending Owner's Equity

A company starts with:
- Assets = 40,000
- Liabilities = 25,000
- Owner’s Equity = 15,000

During the year:
- The company earned 20,000 in revenue.
- It paid 5,000 in expenses.
- The owner withdrew 3,000.

Find:
- Ending Assets and Owner’s Equity.

Learn how different transactions, including equipment purchases, loan payments, and revenue earned, affect the accounting equation. Step-by-step solutions to calculate ending assets and owner's equity with real-life financial scenarios.

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