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 $175,000 on account.
- Sold equipment for $203,000 cash (not including sales tax). Sales tax of 8 percent is collected when the merchandise is sold. The merchandise had a cost of $128,000.
- 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 $153,000 of the sales.
- On September 1, Year 1, borrowed $20,500 from the local bank. The note had a 7 percent interest rate and matured on March 1, Year 2.
- Paid $6,000 for warranty repairs during the year.
- Paid operating expenses of $54,500 for the year.
- Paid $125,900 of accounts payable.
- Recorded accrued interest on the note issued in transaction no. 6.
1. Prepare the income statement for Year 1.
2. Prepare the balance sheet for Year 1.
3. Prepare the statement of cash flows for Year 1.
Darshita Changed status to publish July 25, 2020
Answer:
1
| Sales Income Statement |
|||
| Sales | $ 203,000 | ||
| Less: Cost of Goods Sold | $-128,000 | ||
| Gross Profit | $ 75,000 | ||
| Operating Expense | $ 54,500 | ||
| Warranty Expense ($203,000*4%) | $ 8,120 | ||
| Total Operating Expense | $ -62,620 | ||
| Operating Income | $ 12,380 | ||
| Add: Other income/gains | |||
| Interest Revenue | $ 478 | ||
| Net Income | $ 12,858 | ||
2
| Ozark Sales Balance Sheet |
|||
| Assets: | |||
| Cash | $ 91,100 | ||
| Inventory | $ 47,000 | ||
| Interest Receivable ($20,500*7%*4/12) | $ 478 | ||
| Total Assets | $ 138,578 | ||
| Liabilities: | |||
| Accounts Payable | $ 49,100 | ||
| Estimated Warranty | $ 2,120 | ||
| Sales Tax Payable | $ 4,000 | ||
| Note Payable | $ 20,500 | ||
| Total liabilities | $ 75,720 | ||
| Stockholder’s Equity | |||
| Common Stock | $ 50,000 | ||
| Retained Earning | $ 12,858 | ||
| Total Stockholder’s Equity | $ 62,858 | ||
| Total Liabilities and equity | $ 138,578 | ||
3
| Cash Flow | |||
| Cash Flow statement | |||
| Cash flow from operating activities: | |||
| Cash from sales | $ 219,240 | ||
| Cash paid for repairs | $ -6,000 | ||
| Cash paid for operating expense | $ -54,500 | ||
| Cash paid for sales tax | $ -12,240 | ||
| Cash paid for purchases | $-125,900 | ||
| Total Cash flow from operating activities | $ 20,600 | ||
| Cash flow from Financing activities: | |||
| Issue of common stock | $ 50,000 | ||
| Borrowing from bank | $ 20,500 | ||
| Cash flow from financing activities | $ 70,500 | ||
| Net Increase/decrease | $ 91,100 | ||
Darshita Changed status to publish July 25, 2020
