Textbook Problem

Transactions

On April 1 of the current year, Morgan Jones established a business to manage rental property. She completed the following transactions during April:

a. Opened a business bank account with a deposit of $60,000 in exchange for common stock.

b. Purchased office supplies on account, $1,800.

c. Received cash from fees earned for managing rental property, $22,300.

d. Paid rent on office and equipment for the month, $7,000.

e. Paid creditors on account, $1,100.

f. Billed customers for fees earned for managing rental property, $3,600.

g. Paid automobile expenses for month, $750, and miscellaneous expenses, $1,000.

h. Paid office salaries, $4,000.

i. Determined that the cost of supplies on hand was $250; therefore, the cost of supplies used was $1,550.

j. Paid dividends, $5,000.

Instructions

1. Indicate the effect of each transaction and the balances after each transaction, using the following tabular headings:

2. Briefly explain why issuing common stock and revenues increased stockholders’ equity, while dividends and expenses decreased stockholders’ equity.

3. Determine the net income for April.

4. How much did April’s transactions increase or decrease stockholders’ equity?