Question

During Year 1, Hardy Merchandising Company purchased $20,000 of inventory on account. Hardy sold inventory on account that cost $15,000 for $22,500. Cash payments on accounts payable were $12,500. There was $20,000 cash collected from accounts receivable. Hardy also paid $4,000 cash for operating expenses. Assume that Hardy started the accounting period with $18,000 in both cash and common stock. Required a. Identify the events described in the preceding paragraph and show them in a horizontal statements model. The first event is recorded as an example. b. What is the balance of accounts receivable at the end of Year 1? c. What is the balance of accounts payable at the end of Year 1? d. What are the amounts of gross margin and net income for Year 1? e. Determine the amount of net cash flow from operating activities. Complete this question by entering your answers in the tabs below. Required A Required B Required C Required D Required E Identify the events described in the preceding paragraph and show them in a horizontal statements model. The first event is recorded as an example. (In the Cash Flow column, use the initials "OA" for operating activities, "FA" for financing activities, and "NC" for net change in cash. Not all cells in the "Statement of Cash Flows" column may require an input - leave cells blank if there is no corresponding input needed.) Show less HARDY MERCHANDISING COMPANY Effect of Events on the Financial Statements Balance Sheet = Liabilities + Stockholders' Equity Revenue Inventory Accounts - Common Retained = Payable Stock Earnings 18,000 20,000 20,000 Income Statement - Expenses = Net Income Assets Accounts Receivable Statement of Cash Flows Events Cash + + 18,000 22,500 Beg. bal. 1. Pur. inv. 2a. Sold inv. 2b. Inv. cost 3. Pd. AP 4. Coll. AR 5. Pd. exp. End. bal. (20,000) 12,500 20,000 4,000 54,500 + 2,500 + 20,000 = 20,000 + 18,000 +

Answer 1

Answer

• Requirement [a]

Event	Cash	Accounts receivables	Inventory	Accounts Payable	Common Stock	Retained earnings	Revenues	Expenses	Net Income	Statement of Cash Flows
Beg bal	$18,000				$18,000
1			$20,000	$20,000						$0
2a		$22,500				$22,500	$22,500		$22,500	$0
2b			($15,000)			($15,000)		$15,000	($15,000)	$0
3	($12,500)			($12,500)						($12,500)	OA
4	$20,000	($20,000)								$20,000	OA
5	($4,000)					($4,000)		$4,000	($4,000)	($4,000)	OA
End bal	$21,500	$2,500	$5,000	$7,500	$18,000	$3,500	$22,500	$19,000	$3,500	$3,500	NC

• [b] = $ 2500
• [c] = $ 7500
• [d] =
  Gross margin = 22500 – 15000 = $ 7500
  Net Income = 7500 – 4000 = $ 3500
• [e] = $ 3500