Accounting: 1,001 Practice Problems For Dummies
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An accountant is responsible for capturing business transactions, and determining the financial effect of those transactions on a company's balance sheet. Using the following balance sheet, see if you can calculate the impact of different transactions on a fictitious power company.

Practice questions

Use the following information to answer the questions. The following is a condensed balance sheet for Green Power, Inc. for the fiscal year 2015:

  • Cash: $125,000

  • Accounts receivable: $150,000

  • Inventory: $200,000

  • Property, plant, and equipment: $330,000

  • Total assets: $805,000

  • Operating liabilities: $150,000

  • Interest-bearing liabilities: $160,000

  • Owners' invested capital: $120,000

  • Owners' retained earnings: $375,000

  1. Green Power, Inc. received $50,000 cash as a capital contribution from one of its owners. What impact did this transaction have on the balance sheet?

  2. Green Power, Inc. took out a bank loan for $100,000 on January 1. The terms of the loan require Green Power to repay the loan in full in three years, plus make annual interest payments of $8,000 on December 31. What impact did this transaction have on the balance sheet on the day the company took out the loan?

Answers and explanations

  1. Cash increased to $175,000, and owners' invested capital increased to $170,000.

    The $50,000 cash contribution increased the cash balance and the owners' invested capital balance.

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  2. Cash increased to $225,000, and interest-bearing liabilities increased to $260,000.

    Taking out a loan gives the company cash, so it increases cash and liabilities because the company now has to pay the loan back to the bank.

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If you need more practice on this and other topics from your accounting course, visit Dummies.com to purchase Accounting For Dummies! Featuring the latest information on accounting methods and standards, the information in Accounting For Dummies is valuable for anyone studying or working in the fields of accounting or finance.

About This Article

This article is from the book:

About the book authors:

Kenneth Boyd is the owner of St. Louis Test Preparation (www.stltest.net). He provides online tutoring in accounting and finance. Kenneth has worked as a CPA, Auditor, Tax Preparer, and College Professor. He is the author of CPA Exam For Dummies. Kate Mooney has been teaching accounting to both undergraduates and MBA students at St. Cloud State University since 1986, after earning her PhD from Texas A & M University. She is a licensed CPA in Minnesota and is a member of the State Board of Accountancy.

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