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In the June transactions for Chris Bates’s rental property management business (common stock issued, revenues earned, expenses paid, and dividends paid), stockholders’ equity is increased by issuing common stock and revenues and decreased by dividends and expenses: what words fill the blanks in the sentence “These rights are _______ by issuing common stock and revenues and _______ by dividends and expenses.”?
On June 1 of the current year, Chris Bates established a business to manage rental property. The following transactions were completed during June: a. Opened a business bank account with a deposit of...
On June 1 of the current year, Chris Bates established a business to manage rental property. The following transactions were completed during June: a. Opened a business bank account with a deposit of $43,000 in exchange for common stock. b. Purchased office supplies on account, $2,440. c. Received cash from fees earned for managing rental property, $6,770. d. Paid rent on office and equipment for the month, $3,000. e. Paid creditors on account, $1,110. f. Billed customers for fees earned for managing rental property, $5,550. g. Paid automobile expenses for month, $670, and miscellaneous expenses, $330. h. Paid office salaries, $2,110. i. Determined that the cost of supplies on hand was $1,440; therefore, the cost of supplies used was $1,000. j. Paid dividends, $2,000.
Answer
The blanks are “increased” and “decreased.” Stockholders’ equity increases when the company issues common stock and earns revenues, and it decreases when the company pays dividends and incurs expenses.
Explanation
What this question is testing
You are matching common business transactions to how they change stockholders’ equity, which is owners’ claim on the company’s net assets.
How common stock and revenue affect equity
- Issuing common stock brings in assets (like cash) from owners, so stockholders’ equity goes up.
- Revenues increase net income, and net income increases retained earnings, so stockholders’ equity goes up.
How dividends and expenses affect equity
- Dividends are distributions to owners, which reduce retained earnings, so stockholders’ equity goes down.
- Expenses reduce net income, and lower net income reduces retained earnings, so stockholders’ equity goes down.
Fill in the blanks
So the sentence should read:
- “These rights are increased by issuing common stock and revenues and decreased by dividends and expenses.”
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Skills You Achive
financial accounting
accounting equation
journal entries
understanding stockholders equity
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