Dana, Inc., provides civil engineering services. During October, its transactions included the following:

 

Oct.   1      Paid rent for the month of October, $4,000.

 

Oct.   4      Billed Milton Hotels $8,500 for services. The entire amount is due on or before October 28. (Dana uses an account entitled Service Revenue when billing clients.)

 

Oct.   8      Provided services to Dirt Valley Development for $4,700. The entire amount was collected on this date.

 

Oct. 12     Placed a newspaper advertisement in the Daily Reporter to be published in the October 25 issue. The cost of the advertisement was $320. Payment is due in 30 days.

 

Oct. 20     Received a check for $8,500 from Milton Hotels for the amount billed on October 4.

 

Oct. 24     Provided services to Dudley Company for $3,600. Dana collected $300 cash, with the balance due in 30 days.

 

Oct. 25     Sent a check to the Daily Reporter in full payment of the liability incurred on October 12.

 

Oct. 29     Declared and paid a $2,600 cash dividend to the company’s stockholders.

 

 

 

Instructions

 

a.       Analyze the effects that each of these transactions will have on the following six components of the company’s financial statements for the month of October. Organize your answer in tabular form, using the column headings shown below. Use I for increase, D for decrease, and NE for no effect. The October 1 transaction is provided for you:

 

 

 

Â	Income Statement	Â	Balance Sheet
Transaction Oct. 1	Revenue - Expenses = Net Income NE                  I                     D	Â	Assets = Liabilities + Owners’ Equity D               NE                      D

 

 

 

b.       Prepare a journal entry (including explanation) for each of the above transactions.

 

c.        Three of October’s transactions involve cash payments, yet only one of these transactions is recorded as an expense. Describe three situations in which a cash payment would not involve recognition of an expense.