Rahal and Watson, a small manufacturing company, entered into the following cash transac¬ tions during January of 1997. 1. Issued 800 shares of common stock for $30 each. 2. Collected $3,900 on outstanding accounts receivable. 3. Paid wages for the month of January of $1,530. 4. Purchased land as a long-term investment for $12,000 cash. 5. Paid a $6,000 dividend. 61 Sold a piece of equipment with a book value of $5,000 for $7,000 cash. 7. Paid $2,000 to the bank; $900 to reduce the principal on an outstanding loan, and $1,100 as an interest payment. 8. Paid miscellaneous expenses of $5,000. REQUIRED:

a. Prepare a journal entry for each transaction. Indicate classification and effect on the accounting equation.

b. Prepare a cash T-account, and compute the company’s cash balance as of the end of January. Assume a beginning balance of $4,000.

c. Prepare a statement of cash flows (direct method) for the month of January. 242 Part 2 Use, Measurement, and Mechanics of Financial Statements E5-18 (Cash and accrual accounting: comparison of performance measures)