Question

2. The following relate to Farr Corporation for the month of April: Sales Revenue $140,000 Gain on the sale of Land $20,000 Cost of Goods Sold $75,000 Tax Expense $14,000 Advertising Expense $10,000 Dividends Paid $7,000 Loss on Lawsuit $24,000 a. Determine Farr's gross profit for the month of April. b. Determine Farr's net income for the month of April. c. If retained earnings at the beginning of April were $1,500,000, what would retained earnings be at the end of April? 3. Maverick Company has the following account balances at the end of December. Show that Maverick's balance sheet would balance using the accounting equation. Cash $8,000 Capital Stock $120,000 Inventory $16,000 Note Payable $45,000 Retained Earnings $29,000 Building $150,000 Equipment $20,000

Answer 1

​​​​​​Question 2.

a. Determination of Farr's Gross profit for the month of April:

Gross profit

= Sales Revenue - Cost of goods sold

= $140000 - $75000

= $65000

b. Determination of Farr's Net income for the month of April:

Sales Revenue	$140000
Less: Cost of goods sold	($75000)
Gross profit	$65000
Less: Operating expenses
Advertising expense	($10000)
Loss on lawsuit	($24000)
Operating income	$31000
Add: Other incomes
Gain on sale of land	$20000
Net operating income	$51000
Less: Tax expense	($14000)
NET INCOME	$37000

c. Retained Earnings balance at the end of the month, April:

Retained Earnings, Beginning balance	$1500000
Add: Net income	$37000
Subtotal	$1537000
Less: Dividends paid	($7000)
Retained Earnings, Ending balance	$1530000

Question 3:

Showing Maverick's Balance sheet using accounting equation:

Basic accounting equation

Assets = Liabilities + Total stockolder's Equity

Assets	($)	Liabilities & Equity	($)
Fixed Assets:		Current laibilities:
Building	$150000	Notes payable	$45000
Equipment	$20000	Stockholder's Equity:
Current Assets:		Capital stock	$120000
Inventory	$16000	Retained Earnings	$29000
Cash	$8000
	$194000		$194000

_____×_____

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