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19 July, 22:43

The following events occurred for Favata Company: a. Received $13,000 cash from owners and issued stock to them. b. Borrowed $10,000 cash from a bank and signed a note due later this year. c. Bought and received $1,100 of equipment on account. d. Purchased land for $18,000; paid $1,600 in cash and signed a long-term note for $16,400. e. Purchased $6,000 of equipment, paid $1,600 in cash and charged the rest on account. Required: For each of the events (a) through (e), perform transaction analysis and indicate the account, amount, and direction of the effect ( + for increase and - for decrease) on the accounting equation. (Enter any decreases to account balances with a minus sign.)

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  1. 19 July, 23:09
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    Answer and Explanation:

    The indication of the account, amount and the direction of the effect are as follows

    As we know that

    Accounting equation is

    Total assets = Total liabilities + stockholder equity

    Based on this, the indication and the direction aare as follows

    Assets = Liabilities + Stockholders' Equity

    A) $13,000 = 0 + $13,000

    It increased both the assets and the stockholder equity i. e capital

    B) $10,000 = $10,000 + 0

    It increased both the assets and the liabilities

    C) $1,100 = $1,100 + 0

    It increased both the assets and the liabilities

    D) + $18,000 - $1,600 = $16,400 + 0

    It increased the land by $18,000 and decreased the cash by $1,600 and at the same time it increased the liabilities by $16,400

    E) + $6,000 - $1,600 = $4,400 + 0

    It increased the equipment by $6,000 and decreased the cash by $1,600 and at the same time it also increased the liabilities by $4,400

    Total $44,900 = $31,900 + $13,000
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