Danielle McLynn Started a Consulting Business, McLynn Consulting, on January

question 33

Essay

Danielle McLynn started a consulting business, McLynn Consulting, on January 1, 2013, and the business engaged in the following transactions during the year:
1. Issued $8,000 of common stock for cash
2. Provided services on account, $26,500
3. Incurred $17,500 of operating expense, but only paid $12,000 of this amount
4. Collected $19,000 of the revenue that was previously recorded on account
5. Paid a cash dividend of $4,500 to the stockholders
Required:
a) Show the effects of the above transactions on the accounting equation.
b) Prepare an income statement and statement of cash flows for 2013.

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Definitions:

Moral Hazard

The situation where one party is more likely to take risks because another party bears the cost of those risks.

Adverse Selection

A situation where asymmetric information results in high-risk individuals being more likely to participate in a contract or agreement, potentially leading to market inefficiency.

Life Insurance

A contract between an insurer and a policyholder where the insurer promises to pay a designated beneficiary a sum of money upon the death of the insured person.

Productivity

A measure of the efficiency of a person, machine, system, etc., in converting inputs into useful outputs.