Question

Company during March 20x1:
(1) Issues 20,000 shares of $12 par value common stock in exhcange for $300,000 in cash.

(2) Acquires inventories with a list price of $55,000 on account from suppliers.

(3) Pays invoices for merchandise inventories purchased in (2) with an original list price of $40,000, after deducting a discount of 2% for prompt payment. The firm treats cash discounts as a reduction in the acquisition cost of merchandise inventories.

(4) Sells merchandise to customers totaling $45,000 on account. This merchandise cost $25,000 (assume any discounts obtained by JB from the supplier are already reflected in the inventory account).

(5) Collects $10,000 from customer for sales previously made on account.

Assuming these are the only activities at JB during March (make sure to answer both questions):

1. What are total liabilities + shareholders' equity as reported on the balance sheet at March 31, 20X1?

2. What is the total amount of cash reported on the balance sheet at March 31, 20X1?

Answer 1

Computation of Balance of Cash, total liabilities and Stockholder's equity:
					Cash	Total Liabilities	Total Stockholder's equity
1. Issue of common Stock			3,00,000			3,00,000
2. Inventory purchased on account			55,000
3. Payment made for inventory purchased on account (Gross)	-40,000	-40,000
4. Sales made on account, no effect on these three heads
5. Collection from customer			10,000
Net balance				2,70,000	15,000		3,00,000
Req 1.
Total Liabilities (Accounts payable)		15,000
Total Stockholder's equity (Common Stock+Paid in capital)	3,00,000
Total Liabilities + Stockholder's equity		3,15,000
Req 2.
Cash balance as at Mar31, 2021:			2,70,000