Question

1. Amy Austin established an insurance agency on March 1 of the current year and completed the following transactions during March:

   1. Opened a business bank account with a deposit of $50,000 in exchange for common stock.
   2. Purchased supplies on account, $4,000.
   3. Paid creditors on account, $2,300.
   4. Received cash from fees earned on insurance commissions, $13,800.
   5. Paid rent on office and equipment for the month, $5,000.
   6. Paid automobile expenses for month, $1,150, and miscellaneous expenses, $300.
   7. Paid office salaries, $2,500.
   8. Determined that the cost of supplies on hand was $2,700; therefore, the cost of supplies used was $1,300.
   9. Billed insurance companies for sales commissions earned, $12,500.
   10. Paid dividends, $3,900.

   Required:

   1. Indicate the effect of each transaction and the balances after each transaction. For those boxes in which no entry is required, leave the box blank. For those boxes in which you must enter subtractive or negative numbers use a minus sign. (Example: -300)

   Assets

   =

   Liabilities

   +

   Stockholders' Equity

   Item

   Cash

   +

   Accounts Receivable

   +

   Supplies

   =

   Accounts Payable

   +

   Common Stock

   -

   Dividends

   +

   Fees Earned

   -

   Rent Expense

   -

   Salaries Expense

   -

   Supplies Expense

   -

   Auto Expense

   -

   Miscellaneous Expense

   Item

   a.

   a.

   b.

   b.

   Bal.

   Bal.

   c.

   c.

   Bal.

   Bal.

   d.

   d.

   Bal.

   Bal.

   e.

   e.

   Bal.

   Bal.

   f.

   f.

   Bal.

   Bal.

   g.

   g.

   Bal.

   Bal.

   h.

   h.

   Bal.

   Bal.

   i.

   i.

   Bal.

   Bal.

   j.

   j.

   Bal.

   Bal.

   2. Stockholders' equity is the right of stockholders' to the assets of the business. These rights are   by issuing common stock and revenues and   by dividends and expenses.

   3. Determine the net income for March.
   $

   4. How much did March’s transactions increase or decrease stockholders’ equity?
     by $

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Answer 1

Answer 1.

Answer 2.

Stockholders' equity is the right of stockholders' to the assets of the business. These rights are increased by issuing common stock and revenues and decreased by dividends and expenses.

Answer 3.

Net Income = Fees Earned - Rent Expense - Salaries Expense - Supplies Expense - Auto Expense - Miscellaneous Expense
Net Income = $26,300 - $5,000 - $2,500 - $1,300 - $1,150 - $300
Net Income = $16,050

Answer 4.

Increase in Stockholders’ Equity = Issuance of Common Stock + Net Income - Dividends
Increase in Stockholders’ Equity = $50,000 + $16,050 - $3,900
Increase in Stockholders’ Equity = $62,150