Briefly explain why the stockholders’ investments and revenues increased stockholders’ equity, while…

Ruth Kincaid established a real estate agency on October 1, 2004, and completed the following transactions during October:

a. Opened a business bank account in the name of Granite Realty Inc. with a deposit of $20,000 in exchange for capital stock.

b. Borrowed $15,000 by issuing a note payable.

c. Received cash from commissions earned, $9,000.

d. Paid rent on office and equipment for the month, $1,800.

e. Paid automobile expenses for month, $950, and miscellaneous expenses, $550.

f. Paid office salaries, $1,200.

g. Paid interest on the note payable, $90.

h. Purchased land as a future building site, $20,000.

i. Paid dividends, $1,000.

Instructions

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

Assets = Liabilities + Stockholders’ Equity

Cash + Land = Notes Payable+ Capital Stock + Retained Earnings

Explain the nature of each increase and decrease in stockholders’ equity by an appropriate notation at the right of the amount.

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

3. Prepare an income statement and retained earnings statement for October.

4. Prepare a balance sheet as of October 31, 2004.

5. Prepare a statement of cash flows for October.

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