Roger Smith established an insurance agency on July 1, 20Y5, and completed the following transactions during July: Opened a business bank account in the name of Smith Insurance Inc., with a deposit of $30,000 in exchange for common stock.

Borrowed $50,000 by issuing a note payable.

Received cash from fees earned, $15,000.

Paid rent on office and equipment for the month, $2,500.

Paid automobile expense for the month, $1,250, and miscellaneous expense, $500.

Paid office salaries, $3,250.

Paid interest on the note payable, $250.

Purchased land as a future building site, paying cash of $60,000.

Paid dividends, $1,500.

Instructions

Indicate the effect of each transaction and the balances after each transaction, using the integrated financial statement framework. After all transactions are recorded, enter Net income under the Income Statement column.

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

Prepare an income statement and statement of stockholders’ equity for July.

Prepare a balance sheet as of July 31, 20Y5.

Prepare a statement of cash flows for July.