Question

Transactions and Financial Statements Jo Birde established an insurance agency on March 1, 20Y5, and completed the following transactions during March: a. opened a business bank account in the name of Birde Insurance Inc., with a deposit of $50,000 in exchange for capital stock b. Borrowed $23,500 by issuing a note payable. c. Received cash from fees earned, $27,000. d. Paid rent on office and equipment for the month, $2,600. e. Paid automobile expense for the month, $2,000, and miscellaneous expense, $1,000. f. Paid office salaries, $4,500. g. Paid interest on the note payable, $90. h. Purchased land as a future building site, $58,500. i. Paid dividends, $4,000. Instructions: 1. Indicate the effect of each transaction and the balances after each transaction, using the integrated financial statement framework. If an amount box does not require an entry, leave it blank. Enter account decreases and net cash outflows as negative amounts.

Answer 1

1) Rectification of mistakes identified in the given Statement :

  a) Cash flow statement :

     Deduct cash payment for operating expenses = $2,600 + $2,000 + $1,000 + $4,500 + $90

= $10,190

Cash payment for land should be represented in Negative sign

= - 58,500

   Net increase in cash = $16,810 - $58,500 + $69,500

= $27,810

Cash Closing balance = $27,810

  b) Balance sheet :

  Total liabilities and stock holder's equity

= $23,500 + $50,000 + $12,810

= $86,310

c) Increase in cash should be rectified.