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Dynamic services Inc. was organized on March 1 by two former college roommates. The corporation will provide computer tax services to small businesses. The following transactions occurred during the first month of operations: Prepare a table to summarize the preceding transactions as they affect the accounting equation. Use the format in Exhibit 3-1. Identify each transaction with the date. Prepare an income statement for the month of March. Prepare a classified balance sheet at March 31. From reading the balance sheet you prepared in part (3), what events would you expect to take place in April? Explain your answer.
Expert Answer
| 1 | ||||||||||
| DYNAMIC SERVICE INC. | ||||||||||
| TRANSACTIONS FOR THE MONTH OF MARCH | ||||||||||
| Assets | = | Liabilities | + | Stockholders’ Equity | ||||||
| Accounts | Accounts | Notes | Capital | Retained | ||||||
| Date | Cash | Receivable | Computer | Supplies | Payable | Payable | Stock | Earnings | ||
| 2/3 | $20,000.00 | $20,000.00 | ||||||||
| 7/3 | $7,500.00 | $7,500.00 | ||||||||
| Bal. | $27,500.00 | $- | $- | $- | $- | $7,500.00 | $20,000.00 | $- | ||
| 12/3 | $350.00 | $350.00 | ||||||||
| Bal. | $27,500.00 | $- | $- | $350.00 | $350.00 | $7,500.00 | $20,000.00 | $- | ||
| 19/3 | $2,000.00 | $2,000.00 | ||||||||
| Bal. | $27,500.00 | $2,000.00 | $- | $350.00 | $350.00 | $7,500.00 | $20,000.00 | $2,000.00 | ||
| 20/3 | $(650.00) | $(650.00) | ||||||||
| Bal. | $26,850.00 | $2,000.00 | $- | $350.00 | $350.00 | $7,500.00 | $20,000.00 | $1,350.00 | ||
| 22/3 | $500.00 | $(500.00) | ||||||||
| Bal. | $27,350.00 | $1,500.00 | $- | $350.00 | $350.00 | $7,500.00 | $20,000.00 | $1,350.00 | ||
| 26/3 | $1,400.00 | $1,400.00 | ||||||||
| Bal. | $28,750.00 | $1,500.00 | $- | $350.00 | $350.00 | $7,500.00 | $20,000.00 | $2,750.00 | ||
| 29/3 | $(4,000.00) | $4,000.00 | ||||||||
| Bal. | $24,750.00 | $1,500.00 | $4,000.00 | $350.00 | $350.00 | $7,500.00 | $20,000.00 | $2,750.00 | ||
| 30/3 | $(1,650.00) | $(1,650.00) | ||||||||
| Bal. | $23,100.00 | $1,500.00 | $4,000.00 | $350.00 | $350.00 | $7,500.00 | $20,000.00 | $1,100.00 | ||
| 31/3 | $(700.00) | $(700.00) | ||||||||
| Bal. | $22,400.00 | $1,500.00 | $4,000.00 | $350.00 | $350.00 | $7,500.00 | $20,000.00 | $400.00 | ||
| TOTAL ASSETS: | $28,250 | TOTAL LIABILITIES AND | $28,250 | |||||||
| STOCKHOLDERS’ EQUITY: | ||||||||||
| 2 | ||||||||||
| DYNAMIC SERVICE INC. | ||||||||||
| INCOME STATEMENT | ||||||||||
| FOR THE MONTH ENDED MARCH 31 | ||||||||||
| Revenues: | ||||||||||
| Tax prep Services | $2,000.00 | |||||||||
| Services | $1,400.00 | $3,400.00 | ||||||||
| Expenses: | ||||||||||
| Advertising | $650.00 | |||||||||
| Gas/Electric/Water blls | $700.00 | |||||||||
| Salaries & Wages | $1,650.00 | $3,000.00 | ||||||||
| Net income | $400.00 | |||||||||
| 3 | ||||||||||
| DYNAMIC SERVICE INC. | ||||||||||
| BALANCE SHEET | ||||||||||
| Assets | ||||||||||
| Current assets: | ||||||||||
| Cash | $22,400.00 | |||||||||
| Accounts Receivable | $1,500.00 | |||||||||
| Supplies | $350.00 | |||||||||
| Total current assets | $24,250.00 | |||||||||
| Property, plant, and equipment: | ||||||||||
| Equipment—Computer system | $4,000.00 | |||||||||
| Total assets | $28,250.00 | |||||||||
| Liabilities and Stockholders’ Equity | ||||||||||
| Current liabilities: | ||||||||||
| Accounts Payable | $350.00 | |||||||||
| Long-term debt: | ||||||||||
| Notes Payable | $7,500.00 | |||||||||
| Total liabilities | $7,850.00 | |||||||||
| Capital stock | $20,000.00 | |||||||||
| Retained earnings | $400.00 | |||||||||
| Total stockholders’ equity | $20,400.00 | |||||||||
| Total liabilities and stockholders’ equity | $28,250.00 | |||||||||
| 4.The company has huge cash balance which should be invested in an efficient way.It can also be used to pay off the company’s liabilities | ||||||||||
