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Amy Austin established an insurance agency on March 1 of the current year and completed the following transactions during March: a. Opened a business bank account with a deposit of $50,000 from personal funds. b. Purchased supplies on account, $4,000. c. Paid creditors on account, $2,300. d. Received cash from fees earned on insurance commissions, $13,800. e. Paid rent on office and equipment for the month, $5,000. f. Paid automobile expenses for the month, $1,150, and miscellaneous expenses, $300. g. Paid office salaries, $2,500. h. Determined that the cost of supplies on hand was $2,700; therefore, the cost of supplies used was $1,300. i. Billed insurance companies for sales commissions earned, $12,500. j. Withdrew cash for personal use, $3,900. Instructions 1. Indicate the effect of each transaction and the balances after each transaction, using the following tabular headings: 2. Briefly explain why the owner’s investment and revenues increased owner’s equity, while withdrawals and expenses decreased owner’s equity. 3. Determine the net income for March. 4. How much did March’s transactions increase or decrease Amy Austin’s capital?

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Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124

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Section
BuyFindarrow_forward

Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124
Chapter 1, Problem 1PB
Textbook Problem
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Amy Austin established an insurance agency on March 1 of the current year and completed the following transactions during March:

  1. a. Opened a business bank account with a deposit of $50,000 from personal funds.
  2. b. Purchased supplies on account, $4,000.
  3. c. Paid creditors on account, $2,300.
  4. d. Received cash from fees earned on insurance commissions, $13,800.
  5. e. Paid rent on office and equipment for the month, $5,000.
  6. f. Paid automobile expenses for the month, $1,150, and miscellaneous expenses, $300.
  7. g. Paid office salaries, $2,500.
  8. h. Determined that the cost of supplies on hand was $2,700; therefore, the cost of supplies used was $1,300.
  9. i. Billed insurance companies for sales commissions earned, $12,500.
  10. j. Withdrew cash for personal use, $3,900.

Instructions

  1. 1. Indicate the effect of each transaction and the balances after each transaction, using the following tabular headings:
  2. 2. Briefly explain why the owner’s investment and revenues increased owner’s equity, while withdrawals and expenses decreased owner’s equity.
  3. 3. Determine the net income for March.
  4. 4. How much did March’s transactions increase or decrease Amy Austin’s capital?

Chapter 1, Problem 1PB, Amy Austin established an insurance agency on March 1 of the current year and completed the

a)

To determine

Indicate the effect of each given transaction on the accounting equation.

Explanation of Solution

Accounting equation: Accounting equation is an accounting tool expressed in the form of equation, by creating a relationship between the resources or assets of a company, and claims on the resources by the creditors and the owners. Accounting equation is expressed as shown below:

Assets = Liabilities + Shareholders Equity

Business transaction: Business transaction is a re...

b)

To determine

Explain the reason for increase in owner's equity due to owner's investment and revenue, and decrease in owner's equity due to withdrawals and expenses.

c)

To determine

Determine the net income for the month of March.

d)

To determine

Determine the increase or decrease of owner's equity in the month of March.

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