Why investments and revenues increased stockholders equity


Response to the following problem:

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 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, 2013.

5. Prepare a statement of cash flows for March.

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Financial Accounting: Why investments and revenues increased stockholders equity
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