Based upon the financial transactions for Lucent Technologies, Inc., shown in Exercise 2-21, indicate whether the transaction would be reported in the cash flows from operating, investing, or financing sections of the statement of cash flows.
Debbie Woodall established an insurance agency on July 1, 2007, and completed the following transactions during July:
a. Opened a business bank account in the name of Woodall Insurance, Inc., with a deposit of $18,000 in exchange for capital stock.
b. Borrowed $10,000 by issuing a note payable.
c. Received cash from fees earned, $9,500.
d. Paid rent on office and equipment for the month, $2,000.
e. Paid automobile expense for month, $1,000, and miscellaneous expense, $400.
f. Paid office salaries, $1,200.
g. Paid interest on the note payable, $80.
h. Purchased land as a future building site, $19,500.
i. Paid dividends, $2,500.
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 stockholders' equity, while dividends and expenses decreased stockholders' equity.
3. Prepare an income statement and retained earnings statement for July.
4. Prepare a balance sheet as of July 31, 2007.
5. Prepare a statement of cash flows for July.