Question

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

1. Issued 198,000 shares of $4-par-value common stock for $792,000 in cash.
2. Borrowed $520,000 from Oglesby National Bank and signed a 10% note due in three years.
3. Incurred and paid $410,000 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 $900,000, all on credit.
6. Paid rent of $330,000 on the sales facilities during the first 11 months of the year.
7. Purchased $180,000 of store equipment, paying $54,000 in cash and agreeing to pay the difference within 90 days.
8. Paid the entire $126,000 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 $37,000 during the year.
10. Collected $845,000 in cash from customers during the year for credit sales previously recorded.
11. At year-end, accrued $52,000 of interest on the note due to Oglesby National Bank.
12. At year-end, accrued $30,000 of past-due December rent on the sales facilities.

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.)

Prepare 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

Step 1 Entry Sr.No Credit Debit $7,92,000 а $7,92,000 $5,20,000 $5,20,000 $4,10,000 $4,10,000 $7,30,000 $7,30,000 $9,00,000 $9,00,000 Particulars Cash Common Stock (To Record issue of common stock) Cash Notes Payable (To record loan taken from bank)) Salaries Expense Cash (To Record salaries expense) Inventory Accounts Payable (To record purchase of inventory) Accounts Receivable Sales (Sales) Cost of Good Sold Inventory (To record cost of good sold) Rent Expense Cash (To record rent Expense) Store Equipment Cash Accounts Payable (To record purchase of equipment) Accounts Payable Cash (To record payment to vendor) Utilities Expense Cash (To record payment of utilities) $5,70,000 $5,70,000 $3,30,000 $3,30,000 $1,80,000 $54,000 $1,26,000 $7,46,000 $7,46,000 $37,000 $37,000

$8,45,000 $8,45,000 $52,000 Cash Accounts Receivable (To record collection from customer) Interest Expense Interest Payable (To accrual of interest) Rent Expense Rent Payable (To accrual of interest) $52,000 $30,000 $30,000

Step 2 Particulars Cash Accounts Receivable Inventory Store Equipment Accounts Payable Interest Payable Rent Payable Notes Payable Common Stock Sales Cost of Good Sold Salaries Expense Utilities Expense Interest Expense Rent Expense KISSICK CO Trail Balance For the year ended 20XX Entry Debit Credit $21,57,000 $15,77,000 $9,00,000 $8,45,000 $7,30,000 $5,70,000 $1,80,000 $7,46,000 $8,56,000 $52,000 $30,000 $5,20,000 $7,92,000 $9,00,000 $5,70,000 $4,10,000 $37,000 $52,000 $3,60,000 $61,42,000 Ending Balance Debit Credit $5,80,000 $55,000 $1,60,000 $1,80,000 $1,10,000 $52,000 $30,000 $5,20,000 $7,92,000 $9,00,000 $5,70,000 $4,10,000 $37,000 $52,000 $3,60,000 $24,04,000 $24,04,000

Step 3 KISSICK CO Income Statement For the year ended 20XX Amount Amount $9,00,000 ($5,70,000) $3,30,000 Particulars Sales Less: Cost of good sold Gross Profit Less: Operating Expense Salaries Expense Utilities Expense Rent Total Operating Expense Operating Loss Other Expense Net Loss $4,10,000 $37,000 $3,60,000 ($8,07,000) ($4,77,000) ($52,000) ($5,29,000) Step 4 KISSICK CO Statement of Retained Earnings For the year ended 20XX Particulars Beginning Retained Earnings Net loss for the year Ending Retained Earnings Amount ($5,29,000) ($5,29,000)

Step 5 KISSICK CO Balance Sheet Amount Assets Cash Accounts Receivable Prepaid Insurance Total Current Assets Store Equipment Total Assets Amount $5,80,000 $55,000 $1,60,000 $7,95,000 $1,80,000 $9,75,000 Liabilities $1,10,000 $52,000 $30,000 Accounts Payable Interest Payable Rent Payable Total Current Liabilities Notes Payable Total Liabilities $1,92,000 $5,20,000 $7,12,000 Shareholders' Equity Common Stock Retained Earnings Total Shareholders' Equity $7,92,000 ($5,29,000) $2,63,000 Total Liabilities and Shareholder's Equity $9,75,000