Reference no: EM132679367

Problem - Cody Macedo established an insurance agency on January 1 of the current year and completed the following transactions during January:

a. Opened a business bank account with a deposit of $75,000 in exchange for capital stock.

b. Purchased supplies on account, $3,000.

c. Paid creditors on account, $1,000.

d. Received cash from fees earned on insurance commissions, $11,800.

e. Paid rent on office and equipment for the month, $4,000.

f. Paid automobile expenses for month, $600, and miscellaneous expenses, $200.

g. Paid office salaries, $2,500.

h. Determined that the cost of supplies on hand was $1,900; therefore, the cost of supplies used was $1,100.

i. Billed insurance companies for sales commissions earned, $12,500.

j. Paid dividends, $5,000.

Instructions -

1. Indicate the effect of each transaction and the balances after each transaction?

2. Briefly explain why the stockholders' investments and revenues increased stockholders' equity, while dividends and expenses decreased stockholders' equity.

3. Determine the net income for January.

4. How much did January's transactions increase or decrease retained earnings?