Reference no: EM133303632

Question 1.

Consider a company called Extra, specialised in providing advice to start-ups. Extra records the following transactions during a given fortnight.

Extra receives $100,000 payment for services it just provided to start-ups (transaction 1);

Extra pays its employees $60,000 (transaction 2);

Extra buys back $30,000 worth of shares in the secondary market from Babasuper, a superannuation fund (transaction 3), shares that Extra had issued in the past for $40,000;

Extra pays $ 2,000 coupons on bonds (transaction 4) it had issued in the past.

All transactions are done through a transactional bank account.

1. Draw Extra's balance sheet and represent how the four transactions above have affected it during the fortnight under review (do not represent transactions in the past). Use one single balance sheet for all transactions, indicate the entry name, the value of the variations (sign followed by a number) and avoid repeating entry name if they are used in several transactions (group them but show the details of each transaction). No explanations are required.

2. Draw a detailed and complete diagram of flow of funds for transaction 3. Indicate the identity and status of the agents involved, the type of money, the type of instrument, the creation and or destruction if relevant.

3. Have past retained profits funded the buy back of the shares? Explain your answer in depth.