Question

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

Issued 194,000 shares of $5-par-value common stock for $970,000 in cash.

Borrowed $540,000 from Oglesby National Bank and signed a 11% note due in three years.

Incurred and paid $390,000 in salaries for the year.

Purchased $700,000 of merchandise inventory on account during the year.

Sold inventory costing $590,000 for a total of $900,000, all on credit.

Paid rent of $220,000 on the sales facilities during the first 11 months of the year.

Purchased $150,000 of store equipment, paying $53,000 in cash and agreeing to pay the difference within 90 days.

Paid the entire $97,000 owed for store equipment and $620,000 of the amount due to suppliers for credit purchases previously recorded.

Incurred and paid utilities expense of $37,000 during the year. Collected $855,000 in cash from customers during the year for credit sales previously recorded.

At year-end, accrued $59,400 of interest on the note due to Oglesby National Bank.

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

Cash
Common stock	$970,000	$390,000	Salaries expense
Notes payable	540,000	220,000	Rent expense
Accounts receivable	855,000	53,000	Store equipment
		97,000	Store equipment
		620,000	Accounts payable
		37,000	Utilities expense
End.Bal.	$948,000

KISSICK CO. Income Statement
Sales		$900,000
Cost of goods sold		590,000
Gross profit		310,000
Operating expenses:
Salaries expenses	$390,000
Rent expense (220,000+20,000)	240,000
Utilities expenses	37,000
Interest on notes payable	59,400
		(726,400)
Net income (loss)		$(416,400)

KISSICK CO. Balance Sheet
Assets
Current assets
Cash	$948,000
Accounts receivable ($900,000-855,000)	45,000
Inventory ($700,000-590,000)	110,000
Total current assets	1,103,000
Store equipment	150,000
Total assets	1,253,000
Liabilities and stockholders equity
Current liabilities
Accounts payable ($700,000-620,000)	80,000
Rent payable	20,000
Interest payable	59,400
Total current liabilities	159,400
11% Notes payable	540,000
Total liabilities	699,400
Stockholders equity
Common stock	970,000
Retained earnings	(416,400)
Total liabilities and stockholders equity	$1,253,000