Question

Following are the transactions and adjustments that occurred during the first year of operations at Kissick Co.

1. Issued 197,000 shares of $4-par-value common stock for $788,000 in cash.
2. Borrowed $540,000 from Oglesby National Bank and signed a 11% note due in three years.
3. Incurred and paid $400,000 in salaries for the year.
4. Purchased $730,000 of merchandise inventory on account during the year.
5. Sold inventory costing $570,000 for a total of $910,000, all on credit.
6. Paid rent of $220,000 on the sales facilities during the first 11 months of the year.
7. Purchased $150,000 of store equipment, paying $53,000 in cash and agreeing to pay the difference within 90 days.
8. Paid the entire $97,000 owed for store equipment and $620,000 of the amount due to suppliers for credit purchases previously recorded.
9. Incurred and paid utilities expense of $36,000 during the year.
10. Collected $835,000 in cash from customers during the year for credit sales previously recorded.
11. At year-end, accrued $59,400 of interest on the note due to Oglesby National Bank.
12. At year-end, accrued $20,000 of past-due December rent on the sales facilities.

Required:
a. Prepare an income statement (ignoring income taxes) for Kissick Co.'s first year of operations and a balance sheet as of the end of the year. (Hint: You may find it helpful to prepare a T-account for the Cash account since it is affected by most of the transactions.)

Answer 1

910,000 570,000 340,000 Kissick Co. Income Statement Sales Cost of goods sold Gross Profit Operating Expenses Salaries expense Rent expense Utilities expenses Total Operating Expenses Operating Income (Loss) Interest expense Net Income (Loss) 400,000 240,000 36,000 676,000 (336,000) 59,400 (395,400)

Kissick Co. Balance Sheet Assets Current Assets Cash Accounts Receivable Inventory Total Current Assets Liabilities Current Liabilities 737,000 Accounts Payable 75,000 Interest Payable 160,000 Rent Payable 972,000 Total Current Liabilities 110,000 59,400 20,000 189,400 Property, Plant & Equipment Store Equipment Long-term Liabilities 150,000 Notes Payable Total Liabilities 540,000 729,400 Stockholders Equity Common Stock Retained Earnings (Loss) Total Stockholders Equity 788,000 (395,400) 392,600 Total Assets 1,122,000 Total Liabilities & Stockholders Equity 1,122,000

Credit Date Credit Date Credit Date Credit Kissick Co. T Accounts Date Debit Date Cash $ 788,000C $ 540,000 $ 835,000 g Debit Date Accounts Receivable $ 910,000 Debit Date Inventory $ 730,000 Debit Date Store Equipment $835,000 d $570,000 g $400,000 $220,000 $ 53,000 $ 97,000 $620,000 $ 36,000 Bal. Bal. $ 75,000 Interest Payable $ 160,000 Rent Payable $ 150,000 Notes Payable $ 737,000 Accounts Payable $ 97,000d $ 620,000 h $ 59,400 $ 20,000 $ 540,000 $ 730,000 $ 97,000 Bal. $ 110,000 $ 59,400 20,000 $ 540,000 Common Stock Bal. Income Summary $1,305,400 m $ Retained Earnings (Loss) $395,400 $ 788,000 n 0 $910,000 $395,400 $ 788,000 Bal. $(395,400) Bal. Sales Cost of goods sold $ 570,000 Bal. Salaries expense $400,000 $910,000 e $ $ Rent expense 220,000 20,000 $ 910,000 $570,000 $ 400,000 1 $ 240,000 $ - Bal. Bal. $ Utilities expenses $ 36,000 Interest expense 59,400 n $ 36,000 K $ $ 59,400 Bal. $ . Bal. $ -