Question

Terry Mason organized The Fifth Season at the beginning of February 20Y4. During February, The Fifth Season entered into the following transactions:

1. Terry Mason invested $15,000 in The Fifth Season in exchange for common stock.
2. Paid $2,700 on February 1 for an insurance premium on a 1-year policy.
3. Purchased supplies on account, $900.
4. Received fees of $28,500 during February.
5. Paid expenses as follows: wages, $10,800; rent, $3,200; utilities, $1,400; and miscellaneous, $1,600.
6. Paid dividends of $4,000.

There was $150 of supplies on hand as of February 28.

Statement of Cash Flows Balance Sheet Assets = Liabilities + Stockholders' Equity Cash + Supplies + Prepaid Insurance = Accounts Payable + Common Stock + Retained Earnings a. Investment 15,000 15,000 b. Paid insurance –2,700 2,700     Balances 12,300 2,700 15,000 c. Purchased supplies 900 900     Balances 12,300 900 2,700 900 15,000 d. Fees earned 28,500 28,500     Balances 40,800 900 2,700 900 15,000 28,500 e. Paid expenses –17,000 –17,000     Balances 23,800 900 2,700 900 15,000 11,500 f. Paid dividends -4,000 -4,000     Balances 19,800 900 2,700 900 15,000 7,500 a1. Insurance expense -225 -225     Balances 19,800 900 2,475 900 15,000 7,275 a2. Supplies expense -750 -750     Balances, February 28 19,800 150 2,475 900 15,000 6,525 Statement of Cash Flows Income Statement a. Financing $15,000   d. Fees earned $28,500 b. Operating -2,700   e. Wages expense -10,800 d. Operating 28,500   e. Rent expense -3,200 e. Operating -17,000   e. Utilities expense -1,400 f. Financing -4,000   e. Miscellaneous expense -1,600    Increase in cash $19,800 a1. Insurance -225 a2. Supplies expense -750        Net income $10,525

Prepare an income statement for February.

The Fifth Season
Income Statement
For the Month Ended February 28, 20Y4
Fees earned		$
Operating expenses:
Wages expense	$
Rent expense
Utilities expense
Supplies expense
Insurance expense
Miscellaneous expense
Total expenses
Net income		$

Feedback

An income statement lists revenues and expenses. When revenues are more than the expenses, the difference is net income.

Prepare a statement of stockholders’ equity for February. If an amount box does not require an entry, leave it blank or enter zero "0".

The Fifth Season
Statement of Stockholders’ Equity
For the Month Ended February 28, 20Y4
	Common Stock	Retained Earnings	Total
Balance, February 1	$	$	$
Issued common stock
Net income
Dividends
Balance, February 28	$	$	$

Feedback

Recall that net income on the income statement must be equal to the net effects of revenues and expenses on retained earnings. Therefore, beginning retained earnings plus net income less dividends is equal to ending retained earnings.

Prepare a balance sheet for February.

The Fifth Season
Balance Sheet
February 28, 20Y4
Assets
Cash		$
Supplies
Prepaid insurance
Total assets		$
Liabilities
Accounts payable		$
Stockholders' Equity
Common stock	$
Retained earnings
Total stockholders' equity
Total liabilities and stockholders' equity		$

Feedback

Recall that the balance sheet is a formal representation of the accounting equation, such that total assets must be equal to total liabilities and owner's equity. Assets are items owned by the company, while liabilities are debts owed to creditors, and owner's equity represents the rights of the owner.

Prepare a statement of cash flows for February. If your answer is zero enter "0". Enter net cash outflows as negative amounts.

The Fifth Season
Statement of Cash Flows
For the Month Ended February 28, 20Y4
Cash flows from operating activities:
Cash received from customers	$
Cash paid for expenses
Net cash flows from operating activities		$
Cash flows from financing activities:
Cash received for common stock	$
Cash paid for dividends
Net cash flows from financing activities
Change in cash during February		$
Cash as of February 1, 20Y4
Cash as of February 28, 20Y4		$

Answer 1

Required statements are as prepared below:

The Fifth Season
Income Statement
For the Month Ended February 28, 20Y4
Fees earned		28,500
Operating expenses:
Wages expense	10,800
Rent expense	3,200
Utilities expense	1,400
Supplies expense	750
Insurance expense	225
Miscellaneous expense	1,600
Total expenses		17,975
Net income		10,525

The Fifth Season
Statement of Stockholders’ Equity
For the Month Ended February 28, 20Y4
	Common Stock	Retained Earnings	Total
Balance, February 1	0	$	$
Issued common stock	15,000		15,000
Net income		10,525	10,525
Dividends		-4,000	-4,000
Balance, February 28	15000	6,525	21,525

The Fifth Season
Balance Sheet
February 28, 20Y4
Assets
Cash	19,800
Supplies	150
Prepaid insurance	2,475
Total assets		22,425
Liabilities
Accounts payable		900
Stockholders' Equity
Common stock		15000
Retained earnings		6,525
Total stockholders' equity		21,525
Total liabilities and stockholders' equity		22,425

The Fifth Season
Statement of Cash Flows
For the Month Ended February 28, 20Y4
Cash flows from operating activities:
Cash received from customers	28,500
Cash paid for expenses	-19,700
Net cash flows from operating activities		8,800
Cash flows from financing activities:
Cash received for common stock	15,000
Cash paid for dividends	-4,000
Net cash flows from financing activities		11,000
Change in cash during February		19,800
Cash as of February 1, 20Y4
Cash as of February 28, 20Y4		19,800