a.
Show the effect of the given transactions using horizontal statement model.
a.
Explanation of Solution
Show the effect of the given transactions using horizontal statement model.
Table (1)
- Receiving money of $50,000 from the issue of common stock increases the value of an asset and the stockholder’s equity and affects the statement of cash flow by increasing the financing activity.
- Purchase equipment for $380,000 on account increase the value of an asset and the value of liability of the company.
- Sale of equipment for $510,000 cash increases the value of an asset and the value of the stockholder’s equity. Sale of equipment increases the net income of the company by increasing the value of the revenue in the income statement and it affects the statement of cash flow by increasing the operating activity.
- The cost of the goods sold (inventory) $330,000 decreases the value of an asset and the value of the stockholder’s equity; cost of the merchandise decreases the net income of the company by increasing the value of an expense.
- Providing six month warranty on the equipment increases the value of a liability and decreases the value of the stockholder’s equity; providing six month warranty on the equipment decreases the net income of the company by increasing the value of an expense.
- Paying sales tax to the state agency decreases the value of assets and it affects the statement of the cash flow by decreasing the value of an operating activity.
- Borrowing $50,000 note from the local bank increases the value of an asset and the liability; borrowing money from the local bank affects the statement of cash flow by increasing the value of the financing activity.
- Amount paid on warranty repairs during the year decreases the value of an asset and the liability; paying $6,200 for warranty repairs affects the statement of the cash flow by decreasing the value of an operating activity.
- Amount of $78,000 paid on operating expense decreases the value of an asset and the value of the stockholder’s equity; it decreases the value of the income by increasing the value of an expenses and amount paid on operating expense affects the statement of the cash flow by decreasing the value of an operating activity.
- Amount of $250,000 paid on accounts payable decreases the value of an asset and the liability; amount paid on accounts payable affects the statement of the cash flow by decreasing the value of an operating activity.
- Recording accrued interest of $667 on the note issued increases the value of a liability and decreases the value of a stockholder’s equity; it decreases the value of the income by increasing the value of an expenses.
Working notes:
Calculate the amount of cash collected on the sale of equipment.
Calculate the amount of interest expense.
b.
Prepare the income statement, balance sheet and the statement of cash flow for 2018.
b.
Explanation of Solution
Income statement: The financial statement which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement.
Statement of cash flows: This statement reports all the cash transactions which are responsible for inflow and outflow of cash, and result of these transactions is reported as ending balance of cash at the end of reported period.
Balance Sheet: Balance Sheet summarizes the assets, the liabilities, and the Shareholder’s equity of a company at a given date. It is also known as the statement of financial status of the business.
Prepare the income statement of Company O for 2018.
Company O | ||
Income Statement | ||
For the Year Ended December 31, 2018 | ||
Particulars | Amount in $ | Amount in $ |
Sales Revenue | 510,000 | |
Cost of Goods Sold | (330,000) | |
Gross Margin | 180,000 | |
Expense: | ||
Operating expense | 78,000 | |
Warranty expense | 10,200 | |
Total operating expense | (88,200) | |
Operating income | 91,800 | |
Interest expense | (667) | |
Net Income | 91,133 |
Table (2)
Prepare the balance sheet of Company O for 2018.
Company O | ||
Balance Sheet | ||
As of December 31, 2018 | ||
Particulars | Amount in $ | Amount in $ |
Assets: | ||
Cash | 284,600 | |
Merchandise Inventory | 50,000 | |
Total Assets | 334,600 | |
Total Liabilities and | ||
Liabilities: | ||
Accounts Payable | 130,000 | |
Sales Tax Payable | 8,800 | |
Warranties Payable | 4,000 | |
Interest Payable | 667 | |
Notes Payable | 50,000 | |
Total Liabilities | 193,467 | |
Stockholders’ Equity: | ||
Common Stock | 50,000 | |
91,133 | ||
Total Stockholders’ Equity | 141,133 | |
Total Liabilities and Stockholders’ Equity | 334,600 |
Table (3)
Prepare the statement of cash flow of the Company O for 2018.
Company O | ||
Statement of Cash Flows | ||
For the Year Ended December 31, 2018 | ||
Particulars | Amount in $ | Amount in $ |
Cash Flows From Operating Activities: | ||
Inflow from Customers | 510,000 | |
Inflow from Sales Tax | 40,800 | |
Outflow to Purchase Inventory | (250,000) | |
Outflow for Expenses | (84,200) | |
Outflow for Sales Tax | (32,000) | |
Net Cash Flow from Operating Activities | 184,600 | |
Cash Flows From Investing Activities: | 0 | |
Cash Flows From Financing Activities: | ||
Inflow from Stock Issue | 50,000 | |
Inflow from Loan | 50,000 | |
Net Cash Flow from Financing Activities | 100,000 | |
Net Change in Cash | 284,600 | |
Add: Beginning Cash Balance | 0 | |
Ending Cash Balance | 284,600 |
Table (4)
Working Note:
c.
Calculate the total amount of current liabilities at December 31, 2018.
c.
Explanation of Solution
Calculate the total amount of current liabilities at December 31, 2018.
Particulars | Amount in $ |
Current Liabilities: | |
Accounts Payable | 130,000 |
Sales Tax Payable | 8,800 |
Warranty Payable | 4,000 |
Interest Payable | 667 |
Notes Payable | 50,000 |
Total Current Liabilities | 193,467 |
Table (5)
Therefore, the total amount of current liabilities at December 31, 2018 is $193,467.
Want to see more full solutions like this?
Chapter 7 Solutions
Survey Of Accounting
- 12. On February 1, 2021, MARIGOLD Company factored receivables with a carrying amount of ₱300,000 to SUNFLOWER Company. SUNFLOWER Company assesses a finance charge of 3% of the receivables and retains 5% of the receivable for possible sales returns. Relative to this transaction, you are to determine the amount of loss on sale or factoring to be reported in the income statement of MARIGOLD Company for February. Assume that MARIGOLD factors the receivables on a without recourse basis. The loss to be reported is? * a. ₱ 24,000 b. ₱ 15,000 c. ₱ 9,000 d. ₱ -0-arrow_forwardJ & B Company uses the percentage of sales approach to estimate its uncollectible accounts. The company’s annual sales for its first financial year of operations ending July 31, 2020 was $500,000, cash sales contributed to 2% of the overall sales and the 3 accounts receivable balance at year end was $75,000. Based on industry expectations, it estimated that 3% of its credit sales would be uncollectible. Required: Calculate the bad debt expense at July 31, 2020. Calculate the net receivable balance that would be reported in the Statement of Financial Position as at July 31, 2020.arrow_forwardThe following transactions apply to Ozark Sales for Year 1: The business was started when the company received $48,000 from the issue of common stock. Purchased merchandise inventory of $176,000 on account. Sold merchandise for $202,000 cash (not including sales tax). Sales tax of 7 percent is collected when the merchandise is sold. The merchandise had a cost of $127,000. Provided a six-month warranty on the merchandise sold. Based on industry estimates, the warranty claims would amount to 4 percent of sales. Paid the sales tax to the state agency on $152,000 of the sales. On September 1, Year 1, borrowed $21,500 from the local bank. The note had a 5 percent interest rate and matured on March 1, Year 2. Paid $6,000 for warranty repairs during the year. Paid operating expenses of $55,500 for the year. Paid $124,300 of accounts payable. Recorded accrued interest on the note issued in transaction number 6. b1. Prepare the journal entries for the preceding transactions.b2. Post…arrow_forward
- 8.1 During month of May, UMPI, Inc. had cash sales of $243,624 and credit sales of $153,687, both of which include Maine sales tax of 5.5% that must be remitted to the state by June 15th. Note that UMPI did not segregate the sales tax from the sales when made during the month. They just record the full amount as sales revenue. Prepare the adjusting journal entry to fairly present the May 31 financial statements. 8.2 The payroll of UMPI, Inc. for May 31 is as follows: The total payroll was $150,000. None of the individual wages was greater than $132,900 (social security maximum threshold for 2019). Income taxes withheld from employees totaled $37,500 and union dues withheld was $4,000. Assume FICA tax is 7.65% on employee’s wages (6.2% Social Security & 1.45% Medicare tax). Calculate Unemployment tax - .6% FUTA and 5.4% SUTA taxes. No employees have reached the $7,000 maximum wage threshold. A. Prepare the necessary journal entries for the wages paid on May 31 Prepare the…arrow_forwardThe following transactions apply to Ozark Sales for Year 1: The business was started when the company received $48,000 from the issue of common stock. Purchased equipment inventory of $176,000 on account. Sold equipment for $199,500 cash (not including sales tax). Sales tax of 7 percent is collected when the merchandise is sold. The merchandise had a cost of $124,500. Provided a six-month warranty on the equipment sold. Based on industry estimates, the warranty claims would amount to 4 percent of sales. Paid the sales tax to the state agency on $149,500 of the sales. On September 1, Year 1, borrowed $21,500 from the local bank. The note had a 5 percent interest rate and matured on March 1, Year 2. Paid $5,500 for warranty repairs during the year. Paid operating expenses of $55,500 for the year. Paid $124,000 of accounts payable. Recorded accrued interest on the note issued in transaction no. 6. b-1. Prepare the income statement for Year 1. Note: Round your answers to the nearest…arrow_forward7. Martinez Corporation had January 1 and December 31 balances as follows. 1/1/20 12/31/20 Inventory $94,000 $108,000 Accounts payable 69,000 78,000 For 2020, cost of goods sold was $440,000.Compute Martinez’s 2020 cash payments to suppliers. Cash payments to suppliers $arrow_forward
- The following transactions apply to Ozark Sales for Year 1: The business was started when the company received $50,000 from the issue of common stock. Purchased equipment inventory of $178,000 on account. Sold equipment for $192,000 cash (not including sales tax). Sales tax of 6 percent is collected when the merchandise is sold. The merchandise had a cost of $117,000. Provided a six-month warranty on the equipment sold. Based on industry estimates, the warranty claims would amount to 5 percent of sales. Paid the sales tax to the state agency on $142,000 of the sales. On September 1, Year 1, borrowed $21,500 from the local bank. The note had a 6 percent interest rate and matured on March 1, Year 2. Paid $5,900 for warranty repairs during the year. Paid operating expenses of $56,000 for the year. Paid $124,000 of accounts payable. Recorded accrued interest on the note issued in transaction no. 6. Required Record the given transactions in a horizontal statements model. Prepare the…arrow_forwardProblem 10-01A On January 1, 2022, the ledger of Cullumber Company contained these liability accounts. Accounts Payable $45,000 Sales Taxes Payable 9,100 Unearned Service Revenue 21,500 During January, the following selected transactions occurred. Jan. 1 Borrowed $18,000 in cash from Apex Bank on a 4-month, 5%, $18,000 note. 5 Sold merchandise for cash totaling $5,936, which includes 6% sales taxes. 12 Performed services for customers who had made advance payments of $12,500. (Credit Service Revenue.) 14 Paid state treasurer’s department for sales taxes collected in December 2021, $9,100. 20 Sold 750 units of a new product on credit at $54 per unit, plus 6% sales tax. During January, the company’s employees earned wages of $52,000. Withholdings related to these wages were $3,978 for Social Security (FICA), $5,686 for federal income tax, and $1,706 for state income tax. The company owed no money related to these earnings for federal or state…arrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education