Question

Problems Obj 1,2,3 ✓ 3. Net income, $18,000 P2-1 Transactions and financial statements Jo Birde established an insurance agency on March 1, 2013, 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 $25,000 by issuing a note payable. c. Received cash from fees earned, $28,000. d. Paid rent on office and equipment for the month, $3,000. e. Paid automobile expense for the month, $1,800, and miscellaneous expense, $900. f. Paid office salaries, $4,200. g. Paid interest on the note payable, $100. h. Purchased land as a future building site, $55,000. 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. 2. Briefly explain why the stockholders' investments and revenues increased stock holders' equity, while dividends and expenses decreased stockholders' equity. 3. Prepare an income statement and retained earnings statement for March. 4. Prepare a balance sheet as of March 31, 2013. 5. Prepare a statement of cash flows for March.

Answer 1

Solution 2 : Stockholders’ equity is the right of stockholders to the assets of the business. These rights are increased by stockholders’ investments and revenues and decreased by dividends and expenses.

Solution 3:

.	BIRDE INSURANCE INC.
	Income Statement
	For the Month Ending March 31, 2013
	Revenues:
	Fees earned................................................................	$ 28,000
	Expenses:
	Salary expense ..........................................................	$ 4,200
	Rent expense .............................................................	3,000
	Auto expense .............................................................	1,800
	Interest expense ........................................................	100
	Miscellaneous expense .............................................	900
	Total expenses			10,000
	Net income				$ 18,000
	BIRDE INSURANCE INC.
	Retained Earnings Statement
	For the Month Ending March 31, 2013
	Net income ......................................................................	$ 18,000
	Less dividends ................................................................	4,000
	Retained earnings, March31, 2013				$ 14,000
	Solution 4 :
	BIRDE INSURANCE INC.
	Balance Sheet
	March 31, 2013
	Assets
	Cash .................................................................................	$ 34,000
	Land .................................................................................	55,000
	Total assets				$ 89,000
	Liabilities
	Notes payable..................................................................	$ 25,000
	Stockholders’ Equity
	Capital stock....................................................................	$ 50,000
	Retained earnings ...........................................................	14,000
	Total stock holders’ equity				64,000
	Total liabilities and stockholders’ equity ......................	$ 89,000

Solution 5 :

	BIRDE INSURANCE INC.
	Statement of Cash Flows
	For the Month Ending March 31, 2013
	Cash flows from operating activities:
	Cash receipts from operating activities ..................	$28,000
	Deduct cash payments for operating activities ......	(10,000)
	Net cash flows from operating activities ......................	$ 18,000
	Cash flows used for investing activities:
	Cash payment for land ..............................................	(55,000)
	Cash flows from financing activities:
	Cash receipts from issuing capital stock ................	$ 50,000
	Cash receipts from issuing note payable ................	25,000
	Cash payments for dividends ...................................	(4,000)
	Net cash flows from financing activities		71,000
	Net increase in cash during March			$ 34,000
	Cash as of March 1, 2013 ...............................................	0
	Cash as of March 31, 2013			$ 34,000