Question

Toby invested $30,000 from her retirement account, borrowed $20,000 from the bank and opened her landscaping business by buying $10,000 in equipment (expected to last 10 years) and $5,000 in inventory (lime, sod, stones, loam, etc.). Set up the balance sheet for this point in the formation. During the year, Toby made $100,000 in sales (30% for cash) and collected $60,000 in AR. She paid $20,000 in wages for a part time employee, sold $3,000 of inventory (included in the total sales of $100,000), paid $2,000 in insurance, paid $8,000 for gas, $1,000 in interest, $1,000 in taxes. She bought $4,000 in job materials (inventory that is used immediately) all on account but paid $1,000 off by year-end. Construct a balance sheet and income statement at this point for the firm.

is it possible to do a walkthrough?

Answer 1

Income Statement $ $ Sales Revenue 100,000 Less: Cost of goods sold (3,000) Gross income (A) 97,000 Less: Operating expenses; Wages 20,000 Insurance expenses 2,000 Gas 8,000 Interest 1,000 Taxes 1,000 Total operating expenses (B) 32,000 Net income (A)-(B) 65,000

Balance Sheet Owner's equity and liabilities $ $ Owner's Capital 30,000 Add: Net income 65,000 Total owner's equity 95,000 20,000 Bank borrowings Current liabilities; Accounts Payable ( $ 4,000 - $ 1,000) 3,000 TOTAL EQUITY AND LIABILITIES 118,000 Assets; Fixed Assets; Equipment 10,000 Current assets; Inventory ($ 5,000 + $ 4,000 - $ 3,000) Accounts Receivable ($ 100,000 x 70% - $ 60,000) 6,000 10,000 Cash (See workings below) 92,000 total current assets 108,000 TOTAL ASSETS 118,000

$ Working note Cash balance Cash invested from retirement account 30,000 Borrowed from bank 20,000 Cash paid for equipment (10,000) Paid for inventory (5,000) Cash sales ( $ 100,000 x 30%) 30,000 Collected from AR 60,000 Wages paid (20,000) Insurance paid (2,000) paid for gas (8,000) Interest paid (1,000) Taxes paid (1,000) paid against accounts payable (1,000) Ending balance of Cash