(Question and Answer): Dynamic services Inc. was organized on March 1 by two former college roommates. The corporation will provide computer tax services to small businesses. T

Chapter 3 Processing Accounting Information LO3 Problem 3-3A Transaction Analysis and Financial Statements rvices Inc. was organized on March 1 by two former college roommates. The corpo ration will provide computer tax services to small businesses. The following transactions occurred during the first month of operations March 2: Received contributions of $10,000 from each of the two principal owners in exchange for shares of stock. Signed a two-year promissory note at the bank and received cash of $7,500. Interest, along with the $7,500, will be repaid at the end of the two years. March 7: t due in 30 days. Billed a client $2,000 for tax preparation services. According to an agreement between the two companies, the client is to pay 25% of the bill upon its receipt an the remaining balance within 30 days. March 19: March 20: Paid a S650 bill from the local newspaper for advertising for the month of March. Received 25% ofthe amount billed the client on March 19 Received cash of $1,400 for services provided in assisting a client in preparing its tax March 22: March 26: return March 29: Purchased a computer system for $4,000 in cash. March 30: Paid $1,650 in salaries and wages for March. March 31: Reccived and paid $700 of gas, electric, and water bills. Required l. Prepare a table to summarize the preceding transactions as they affect the accounting equa- tion. Use the format in Exhibit 3-1. Identify each transaction with the date 2. Prepare an income statement for the month of March. 3. Prepare a classified balance sheet at March 31. 4. From reading the balance sheet you prepared in part (3), what events would you expect to take place in April? Explain your answer.

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

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