Question

Expert Computers was started in Year 1. The company experienced the following accounting events during its first year of operation: 1. Started business when it acquired $40,000 cash from the issue of common stock. 2. Purchased merchandise with a list price of $32,000 on account, terms 2/10, n/30. 3. Pald off one-half of the accounts payable balance within the discount period. 4. Sold merchandise on account for $28,000. Credit terms were 120, 1/30. The merchandise had cost Expert Computers $16,000. 5. Collected cash from the account receivable within the discount period. 6. Paid $2,100 cash for operating expenses. 7. Paid the balance due on accounts payable. The payment was not made within the discount period. Required a. Record the events in a horizontal statements model below. In the Cash Flows column, use the letters OA to designate operating activity, IA for investing activity, FA for financing activity, or NC for net change in cash. If the account is not affected by the event, leave the cell blank. The first event is recorded as an example, b. What is the amount of gross margin for the period? What is the net income for the period? Complete this question by entering your answers in the tabs below. Required A Required B Record the events in a horizontal statements model below. In the Cash Flows column, use the letters OA to designate operating activity, IA for investing activity, FA for Financing act event, leave the cell blank. The first event is recorded as an example. (Not every cell will require entry. Enter any decreases to account balances and cash outflows with a minus sign EXPERT COMPUTERS Horizontal Statements Model for Year 1 Liabilities + Stockholders' Equity Accounts Common Retained Payable Stock Earnings 40,000 Income Statement Assets Accounts Receivable Event Cash Inventory Revenue Expenses Net Income 1 40.000 . + 2 - + . 3. 4a 4 . + + 5. + 6

Answer 1

Requirement A:

EXPERT COMPUTERS

Horizontal Statements Model for Year 1

Event

Assets

=

Liabilities

+

Stockholders' Equity

Income Statement

Statement of Cash flows

Cash

+

Accounts Receivable

+

Inventory

=

Accounts payable

+

Common Stock

+

Retained Earnings

Revenue

-

Expenses

=

Net Income

1

$40,000

+

+

=

+

$40,000

+

-

=

$40,000

FA

2

+

+

$32,000

=

$32,000

+

+

-

=

3

($15,680)

+

+

($320)

=

($16,000)

+

+

-

=

($15,680)

OA

4A

+

$28,000

+

=

+

+

$28,000

$28,000

-

=

$28,000

4B

+

+

($16,000)

=

+

+

($16,000)

-

$16,000

=

($16,000)

5

$27,720

+

($28,000)

+

=

+

+

($280)

-

$280

=

($280)

$27,720

OA

6

($2,100)

+

+

=

+

+

($2,100)

-

$2,100

=

($2,100)

($2,100)

OA

7

($16,000)

+

+

=

($16,000)

+

+

-

=

($16,000)

OA

Total

$33,940

+

$0

+

$15,680

=

$0

+

$40,000

+

$9,620

$28,000

-

$18,380

=

$9,620

$33,940

Requirement B:

Gross margin	$11,720
Net income	$9,620

Calculations:

Sales revenue	$28,000
(less): Sales discount [$28,000 x 1%]	($280)
Net sales		$27,720
(Less): Cost of goods sold		($16,000)
Gross margin		$11,720
(Less): Operating Expenses		($2,100)
Net income		$9,620