Financial Accounting: An Integrated Statements Approach, 2nd Edition

Whitney Tomas established a real estate agency on March 1, 2007, and completed the following

transactions during March:

a. Opened a business bank account in the name of Tomas Realty, Inc., with a deposit of

$25,000 in exchange for capital stock.

b. Borrowed $15,000 by issuing a note payable.

c. Received cash from commissions earned, $11,500.

d. Paid rent on office and equipment for the month, $2,200.

e. Paid automobile expense for month, $1,050, and miscellaneous expense, $500.

f. Paid office salaries, $1,400.

g. Paid interest on the note payable, $100.

h. Purchased land as a future building site, $22,600.

i. Paid dividends, $1,500.

Instructions

1. Indicate the effect of each transaction and the balances after each transaction, using the in-
   tegrated financial statement framework.


2. Briefly explain why the stockholders’ investments and revenues increased stockholders’
   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, 2007.


5. Prepare a statement of cash flows for March.

Kay Larsh established Kodiak Architectural Services on October 1, 2007. The effect of each trans-

action and the balances after each transaction for October are shown in the integrated financial

statement framework at the top of the following page.

Instructions

1. Prepare an income statement for the month ended October 31, 2007.


2. Prepare a retained earnings statement for the month ended October 31, 2007.


3. Prepare a balance sheet as of October 31, 2007.


4. Prepare a statement of cash flows for the month ended October 31, 2007.

86 Chapter 2 Basic Accounting Concepts

Crazy Creek Realty, Inc.

Statement of Cash Flows

October 31, 2007

Cash flows from operating activities:

Cash receipts from sales commissions $ 92,200

Cash flows from investing activities:

Cash payments for land (40,400)

Cash flows from financing activities:

Cash receipts from retained earnings 81,250

Net increase in cash during October $133,050

Cash as of October 1, 2007 0

Cash as of October 31, 2007 $133,050

Alternate Problem

2-1B

Transactions and financial

statements

Goals1, 2, 3

3. Net income, $6,250

GENERAL LEDGER

Alternate Problem

2-2B

Transactions and financial

statements

Goals1, 2, 3

1. Net income, $6,550

ALTERNATE ACCOUNTING APPLICATION PROBLEMS