Dan Watson started a small merchandising business in 2018. The business experienced the following events during its first year of operation. Assume that Watson uses the perpetual inventory system.
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Acquired $30,000 cash from the issue of common stock.
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Purchased inventory for $18,000 cash.
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Sold inventory costing $15,000 for $32,000 cash.
Required
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Record the events in a horizontal statement model. In the Cash Flow column, use OA to designate operating activity, IA for investment activity, FA for financing activity, or NC for net change in cash. If the element is not affected by the event, leave the cell blank.
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Prepare an income statement for 2018 (use the multistep format).
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What is the amount of total assets at the end of the period?
Homework Answers
| a. | ||||||||||||||
| Assets | = | Stockholder's equity | Revenue | - | Expenses | = | Net income | Statement of cash flows | ||||||
| Event | Cash | + | Inventory | = | Common stock | + | Retained earnings | |||||||
| 1. | $30,000 | $30,000 | $30,000 | FA | ||||||||||
| 2 | -$18,000 | $18,000 | -$18,000 | OA | ||||||||||
| 3a | $32,000 | $32,000 | $32,000 | OA | ||||||||||
| 3b | -$15,000 | $15,000 | $0 | NC | ||||||||||
| $44,000 | $3,000 | |||||||||||||
| b. | ||||||||||||||
| Income statement for 2018 is shown below | ||||||||||||||
| Dan Watson | ||||||||||||||
| Income statement | ||||||||||||||
| For the year ended 31st December 2018 | ||||||||||||||
| Sales revenue | $32,000 | |||||||||||||
| Less: Cost of goods sold | $15,000 | |||||||||||||
| Gross profit | $17,000 | |||||||||||||
| c. | ||||||||||||||
| Total assets | Cash + Inventory | |||||||||||||
| Total assets | 44000+3000 | |||||||||||||
| Total assets | $47,000 | |||||||||||||
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Acquired $18,500 cash from the issue of common stock.
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Paid $950 for advertising expense.
Required
Record the events in a horizontal statement model. In the Cash
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Acquired $60,000 cash from the issue of common stock.
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