Question

During Year 1, Hardy Merchandising Company purchased $16,000 of inventory on account. Hardy sold inventory on account that cost $12,000 for $18,000. Cash payments on accounts payable were $10,000. There was $16,000 cash collected from accounts receivable. Hardy also paid $3,600 cash for operating expenses. Assume that Hardy started the accounting period with $24,000 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.)

Answer 1

Answer to Requirement A:

Event Assets Accounts Receivable Statement of Cash Flows - Net Income Expenses Cash HARDY MERCHANDISING COMPANY Effect of Events on the Financial Statements Balance Sheet = Liabilities + Stockholders' Equity Accounts Common Retained Inventory = 1 Payable Stock Earnings 24000 + 16000 16000 18000 18000 -12000 - 12000 -10000 Beg. Bal. 24000 + 18000 + 18000 -12000 + 12000 = 1 + -16000 -10000 16000 -3600 26400 -10000 | OA 16000 | OA -3600 OA | 5 End. Bal. -3600 + + 2000 1# 2000 + 4000 4000 tot 3600 15600 -3600 2400 6000 24000 2400 18000 - =

Answer to Requirement B:

Accounts Receivable = $2,000

Answer to Requirement C:

Accounts Payable = $6,000

Answer to Requirement D:

Gross Margin = Sales - Cost of Goods Sold
Gross Margin = $18,000 - $12,000
Gross Margin = $6,000

Net Income = Gross Margin - Operating Expenses
Net Income = $6,000 - $3,600
Net Income = $2,400

Answer to Requirement E:

Net Cash Flow from Operating Activities = -$10,000 + $16,000 - $3,600
Net Cash Flow from Operating Activities = $2,400