Question

Required information Exercise 9-8A Current liabilities LO 9-1, 9-2, 9-4 The following information applies to the questions displayed below. The following transactions apply to Ozark Sales for Year 1 1. The business was started when the company received $50,000 from the issue of common stock 2. Purchased equipment inventory of $380,000 on account. 3. Sold equipment for $510,000 cash (not including sales tax). Sales tax of 8 percent is collected when the merchandise is sold. The merchandise had a cost of $330,000 4. Provided a six-month warranty on the equipment sold. Based on industry estimates, the warranty claims would amount to 2 percent of sales 5. Paid the sales tax to the state agency on $400,000 of the sales. 6. On September 1, Year 1, borrowed $50,000 from the local bank. The note had a 4 percent interest rate and matured on March 1, Year 2 7. Paid $6,200 for warranty repairs during the year 8. Paid operating expenses of $78,000 for the year 9. Paid $250,000 of accounts payable. 10. Recorded accrued interest on the note issued in transaction no. 6 Fxercise 9-8A Part a

Answer 1

Hi, so before I start answering your question, I have a small confusion as to whether I am supposed to enter only a '+' or a '-' sign in the respective cells or I am supposed to enter the amount also with the sign. So nevertheless I am going to answer the question with all the amounts so as to make it easy for you.

Answer -

1) Increase in assets and increase in equity of 50,000$. Also corresponding increase of 50,000$ in cash flow.

2) Increase in assets and increase in liability of 3,80,000$. However, since it is on account, no change in cash flows.

3) Regarding income portion - Increase in revenue of 5,10,000$ and increase in expenses of 3,30,000$ and increase in net income by 1,80,000$.

Regarding assets portion - Increase in assets of 2,20,800$, increase in liability of 40,800$ (Sales tax) and increase in equity of 1,80,000$ (net income considered in equity). Also corresponding increase in cash flow will be of 5,50,800$. (Sale value + tax).

4) Increase in expense of 10,200$ and decrease in net income of 10,200$. No impact on cash flows.

5) Decrease in assets of 32,000$ and decrease in liabilities of 32,000$. Also decrease in cash flows of 32,000$.

6) Increase in assets of 50,000$ and increase in liabilities of 50,000$. Also increase in cash flows of 50,000$.

7) Increase in expense of 6,200$ and decrease in net income of 6,200$. Also decrease in cash flows of 6,200$.

8) Increase in expenses of 78,000$ and decrease in net income of 78,000$. Also decrease in cash flows of 78,000$.

9) Decrease in assets of 2,50,000$ and decrease in liabilities of 2,50,000$. Also decrease in cash flows of 2,50,000$

10) Increase in expenses of 1,000$ and decrease in net income of 1,000$. No impact on cash flows.

Hope the above answer solves your doubts. In case of any further help, do leave a comment. Also, do leave a positive feedback, thanks. :)