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SOLUTION TO EXERCISE 1-1

Approach: Write down the basic accounting equation:

ASSETS = LIABILITIES + STOCKHOLDERS' EQUITY

or

A = L + SE

Fill in the amounts given and use your knowledge of algebra to solve for any unknown.

Explanation:

1. Assets = Liabilities + Stockholders' Equity

TIP: Recall that algebraic rules require the change in a number's sign when moved to the other side of the equals sign. Thus, a positive \$150,000 becomes a negative \$150,000 when moved from the right side of the equation to the left side of the equation.

2. Assets = Liabilities + Stockholders' Equity

3. Assets = Liabilities + Stockholders' Equity

4. Assets = Liabilities + Stockholders' Equity

5. (1) ΔA = ΔAL + ΔSE

TIP: When the ↓\$30,000 is moved from the right side of the “=” to the left side of the equation, its sign changes so it becomes a ↑\$30,000.

TIP: The basic accounting equation is applied at a specific point in time. When you have the facts for the equation components at two different points in time ...

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