Question

Ho Designs experienced the following events during Year 1, its first year of operation: 1. Started the business when it acquired $56,000 cash from the issue of common stock. 2. Paid $22,800 cash to purchase inventory. 3. Sold inventory costing $11,900 for $28,200 cash. 4. Physically counted inventory, had inventory of $7,600 on hand at the end of the accounting period. Required a. Record the events in the T-accounts provided. b. Prepare an income statement and balance sheet.

Answer 1

Cash Common stock Beg bah Begebal 1 $56,000 $22,800 $28,200 $56,000 1 3. Ende bal $56,000 Endi bab $61,400 Merchandise inventory Sales Revenue Beg bal Begibal $22,800 $ 11,900 3. $28,200 3, Bal $10,900 $3,300 4 Ende bal $28,200 Endi bali $ 7,600 Cost of Goods sold. Beg, bal 3. $ 11,900 $ 3,300 4. End, bal $15,000 Calculation: Merchandise in ventory $ 22,000 - $ 11,900 $ 10,900 & 10,900 $ 7,600 (inventory on hand) $ 3,300 N

Yearl o $ 13,000 Stockholders equity Total liability and stockholders' equity MO DESIGNS Income statement For the year Ended December 31 Met sales $ 28,200 Less: Cost of goods sold $ 15, 200 Gross profit 13,000 Operating expense $ Net income HO DESIGNS Balance Sheet December 31, Year 1 Assets Cash & 61,400 Merchandise inventory & 7,600 Common stock & 56,000 Retained earnings & 13,000 stockholders' equity Total assets Liabilities & 69,000 $ Total $ 69,000 & 69,000