D. Downs, Attorney at Law, experienced the following transactions in 2007, the first year of operations:

1. Purchased \($1,200\) of office supplies on account.

2. Accepted \($18,000\) on February 1, 2007, as a retainer for services to be performed evenly over the next 12 months.

3. Performed legal services for cash of \($66,000\).

4. Paid cash for salaries expense of \($20,500\).

5. Paid a cash dividend to the stockholders of \($5,000\).

6. Paid \($900\) of the amount due on accounts payable.

7. Determined that at the end of the accounting period, \($125\) of office supplies remained on hand.

8. On December 31, 2007, recognized the revenue that had been earned for services performed in accordance with Transaction 2.

Required:

Show the effects of the events on the financial statements using a horizontal statements model like the following one. In the Cash Flow column, use the initials OA to designate operating activity, IA for investing activity, FA for financing activity, and NC for net change in cash. Use NA to indicate accounts not affected by the event. The first event has been recorded as an example.

Transcribed Image Text:

Assets Liabilities + Stk. Equity Event No. Cash Supplies = Accts. Pay. + Unearn. Rev. + Ret. Earn. Rev. - Exp. == Net Inc. Cash Flow 1 NA + 1,200 = 1,200 NA + NA NA - NA = NA NA NA NA