Chapter 2. Transaction analysis – quantitative; analyze results.
Stacy-Ann Kelly owns and operates Kelly’s Furniture Emporium, Inc. The balance sheet totals for assets, liabilities, and stockholders’ equity at August 1, 2013, are as indicated. Described here are several transaction entered into by the company throughout the month of August.
Required:
a. Indicate the amount and effect (+ or -) of each transaction on total assets, total liabilities, and total stockholder’s equity, and then compute the new totals for each category. The first transaction is provided.

b. What was the total amount of net income (or loss) during August? How much were total revenues and total expenses during August.
Net income for the month of August can be computed as follows:

Total revenues were $50,000 (from sales) and total expenses were $40,200.

c. What were the net changes during the month of August in total assets, total liabilities, and stockholder’s equity?

d. Explain to Stacy-Ann Kelly which transactions caused the net change in her stockholder’s equity during August.
Stacy-Ann Kelly’s stockholder’s equity was increased by revenue’s and it was decreased by expenses and dividends as outlined below:
Equity increased by $17,000 as a result of the sale on August 14th. Her stockholder’s equity decreased by $7,000 for the operating expenses recorded on August 10th, by $200 for the interest expense recorded on August 24th, and by $5,000 for the cash dividend recorded on August 29th.
e. Explain why dividend payments are not an expense but interest is an expense.
A dividend is represents distribution of profit; it is not a “cost” of doing business. Interest expense represents a necessary payment to others for the use of their money.
f. Explain why the money borrowed from the bank increased assets but did not increase net income.
When you borrow money from a bank