Answer:
a. I divided the accounting equation in two parts:
Assets = Liabilities + Equity
Cash Prepaid rent
1) $26,800 0 0 $26,800
2) -$18,600 $18,600 0 0
<u>3) 0 -$17,050 0 -$17,050</u>
$8,200 $1,550 0 $9,750
Revenues - Expenses = Net income Type of cash flow
1) $26,800 0 $26,800 OA
2) 0 0 0 OA
<u>3) 0 $17,050 -$17,050 OA</u>
$26,800 $17,050 $9,750
b. Life, Inc.
Income Statement
For the year ended December 31, Year 1
Revenues $26,800
Expenses <u>-$17,050</u>
Net income $9,750
Life, Inc.
Balance Sheet
For the year ended December 31, Year 1
Assets:
Cash $8,200
Prepaid rent $1,550
Total assets = $9,750
Liabilities: $0
Equity: $9,750
Total assets and liabilities = $9,750
Life, Inc.
Statement of Cash Flows
For the year ended December 31, Year 1
Cash flows form operating activities:
Net income $9,750
Adjustments to net income:
Increase in prepaid rent <u> ($1,550)</u>
Cash flows from operating activities $8,200
Cash flows form investing activities $0
Cash flows form financing activities <u> $0</u>
Net increase in cash position $8,200
Initial cash balance <u> $0</u>
Ending cash balance $8,200
c. $1,550