Question

Using the following information, show how Wilson’s June purchases and sales of those same 50-pound fertilizer bags impacted its statement of cash flows, income statement, and balance sheet during the month. Assume all inventory purchases are on credit and that there was no beginning balance in the accounts receivable account. Disregard income taxes and assume that the gross profit represents the net income effect of the transactions.

• Assume Wilson used the LIFO method, resulting in cost of goods sold of $12,500 and an ending inventory value of $6,600
• There was a $4,200 beginning balance in the accounts payable account on June 1
• Suppliers were paid $13,500 during the month of June
• Wilson earned $25,400 of revenue on sales of the fertilizer bags; $19,900 of the revenue related to cash sales, and the rest were credit sales

  STATEMENT OF CASH FLOW EFFECTS

  Received from customers (O)
  Paid to suppliers (O)
  NET CHANGE IN CASH FLOW

  Note: (O) means operating cash flow

  INCOME STATEMENT EFFECTS

                         

  GROSS PROFIT

             

                                                               BALANCE SHEET EFFECTS

  ASSETS:				LIABILITIES + EQUITY:
  CHANGE IN ASSETS				CHANGE IN LIABILITIES + EQUITY

  		Cash			Accounts Receivable			Inventory
  		Bal 10,000			Bal       0			Bal     3,000
  		Accounts Payable			Retained Earnings
  			4,200   Bal			8,800   Bal
  		Sales Revenue			Cost of Goods Sold Expense

Answer 1

STATEMENT OF CASH FLOW EFFECTS
Received from customers (O)	WN.5	0
Paid to suppliers (O)	WN.2	$13,500
NET CHANGE IN CASH FLOW		-$13,500
Note: (O) means operating cash flow
INCOME STATEMENT EFFECTS
Revenue	WN.3	$25,400
COGS	WN.1	$12,500
GROSS PROFIT		$12,900
BALANCE SHEET EFFECTS
ASSETS:		$13,000		LIABILITIES + EQUITY:		$13,000
Inventories	WN.1	$6,600		Retained Earnings (8800+12900)	WN.1	$21,700
Accounts Receivable	WN.4	$5,500		Accounts Payable	WN.2	$6,800
Cash	WN.5	$16,400
CHANGE IN ASSETS		$15,500		CHANGE IN LIABILITIES + EQUITY		$15,500

Working Notes
WN.1	Inventories
	Balance as on 1st June	$3,000
	Add: Purchases (Balancing figure)	$16,100
	Less: Balance as on 30th June	$6,600
	COGS	$12,500
WN.2	Accounts Payable
	Balance as on 1st June	$4,200
	Add: Purchases (WN.1)	$16,100
	Less: Supplier payments	$13,500
	Balance as on 30th June	$6,800
WN.3	Revenue
	Total Revenue	$25,400
	Less: Cash Revenue	$19,900
	Credit Sales	$5,500
WN.4	Accounts Receivable
	Balance as on 1st June	$0
	Add: Credit Sales (WN.3)	$5,500
	Less: Payments Received	$0
	Balance as on 30th June	$5,500
WN.5	Cash
	Balance as on 1st June	$10,000
	Add: Receipts from customer	$0
	Add: Cash Sales	$19,900
	Less: Payments to Suppliers	$13,500
	Balance as on 30th June	$16,400
WN.6	Retained Earnings
	Balance as on 1st June	$8,800
	Add: Gross Profit	$12,900
	Balance as on 30th June	$21,700