I need an explanation for this Accounting question to help me study.
Option #1: Using the Accounting Equation to Analyze Transactions
Second National Bank just approved a loan for Joey John’s Inc. to start a home gym design business. Joey John’s Inc. is ready to start the business by renting a small office facility, purchasing equipment, hiring sales, design, and administrative help, and beginning to provide services. During March, Joey John’s first month of business, the following transactions occurred:
- Joey John’s, Inc. signed a promissory note at the bank and received $50,000 cash.
- Joey John’s issued shares of capital stock to its shareholders to raise another $75,000 cash.
- Joey John’s purchased training and design equipment in the amount of $35,000 cash.
- Joey John’s purchased supplies worth $500 on account. These supplies are expected to last 6 months.
- Joey John’s hired Joshua Ramirez to assist with design and sales on a part-time basis. He will be paid a salary of $1,000 per month for his work.
- During the first month, Joey John’s completed design work on its first two facilities, one for P. Christopher, and the other for Josephine Johnson.
- Joey John’s completed the design work for P. Christopher and sent him a bill for $1,250.
- Joey John’s completed the design work for Ms. Johnson and sent her a bill for $750.
- Joey John’s collected half of the money ($625) in cash from P. Christopher, with a promise to pay the additional amount next month.
- Joey John’s paid Joshua $1,000 cash for his first month of service.
- Joey John’s received $500 cash in advance to work on a design project for a local gym. Work on the site will not begin until August.
- Joey John’s paid rent of $500 in cash.
Required: Using the Excel template, complete the following activities:
- Analyze each transaction’s effect using the accounting equation, if needed.
- Provide a written explanation (one sentence) on the effect of the transaction on the accounting equation.
Review the grading rubric to understand how you will be graded on this assignment. Review Module 1 Part 3 Lecture: The Accounting Equation, 4.1 (Accounting Cycle) & 4.2 (Preparing Financial Statements) for examples related to your Critical Thinking assignment for this week. Reach out to your instructor if you have questions about the assignment.