 EXERCISE 1 - Transaction Analysis: Air & Sea Travel, Inc.

TEXT - Transaction Details

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(1) Received $50,000 cash and issued stock to the (7) Paid $400 on the account payable created in
owners Transaction 3
(2) Paid $40,000 cash for land (8) Owners paid personal funds to remodel home,
not a transaction of the business
(3) Bought $500 of office supplies on account
(9) Received $1,000 on account
(4) Received $5,500 cash from customers for service
revenue earned (10) Sold land for cash at its cost of $22,000
(5) Performed services for customers on account, (11) Declared and paid a dividend of $2,100 to
$3,000 the stockholders
(6) Paid cash expenses: rent, $1,100; employee salary,
$1,200; utilities, $400

1
 SOLUTION - Transaction Analysis

TYPE OF
STOCKHOLDERS’
EQUITY
ASSETS = LIABILITIES + STOCKHOLDERS’ EQUITY TRANSACTION

Accounts Office Accounts Common Retained

Cash + + + Land + +
Receivable Supplies Payable Stock Earnings
(1) +50.000 +50.000 Issued stock
(2) -40.000 +40.000
(3) +500 +500
(4) +5.500 +5.500 Service revenue
Statement of Cash Flows Data

Statement Data
(5) +3.000 +3.000 Service revenue

Income
(6) -1.100 -1.100 Rent expense 
-1.200 -1.200 Salary expense
-400 -400 Utilities expense

(7) -400 -400

Retained Earnings
(8) Not a transaction of the business

Statement of
(9) +1.000 -1.000
(10) +22.000 -22.000

Data
(11) -2.100 -2.100 Dividends 
Bal. 33.300 2.000 500 18.000 100 50.000 3.700
53.800 53.800
Balance Sheet Data

The table summarizes the 11 transactions.

Note that every transaction maintains the equality:
Assets = Liabilities + Stockholders' Equity
The table provides the data for Air & Sea Travel's financial statements:
 Income statement data appear as revenues and expenses under Retained Earnings. The revenues increase retained
earnings; the expenses decrease retained earnings.
 The balance sheet data are composed of the ending balances of the assets, liabilities, and stockholders' equities
shown at the bottom of the exhibit. The accounting equation shows that total assets ($53,800) equal total
Liabilities plus stockholders' equity ($53,800).
 The statement of retained earnings repeats net income (or net loss) from the income statement. Dividends are
subtracted. Ending retained earnings is the final result.
 Data for the statement of cash flows are aligned under the Cash account. Cash receipts increase cash, and cash
payments decrease cash.