Question

The transactions relating to the formation of Blue Co. Stores Inc., and its first month of operations follow. a. The firm was organized and the stockholders invested cash of $8.900. b. The firm borrowed $4,700 from the bank; a short-term note was signed. c. Display cases and other store equipment costing $1,500 were purchased for cash. The original list price of the equipment was $1,940, but a discount was received because the seller was having a sale. d. A store location was rented, and $1,300 was paid for the first month's rent. e. Inventory of $14,400 was purchased; $8,600 cash was paid to the suppliers, and the balance will be paid within 45 days. f. During the first week of operations, merchandise that had cost $3,700 was sold for $5,600 cash. g. A newspaper ad costing $120 was arranged for; it ran during the second week of the store's operations. The ad will be paid for in the next month. h. Additional inventory costing $4,100 was purchased; cash of $1,250 was paid, and the balance is due in 30 days. I. In the last three weeks of the first month, sales totaled $13,750, of which $9,900 was sold on account. The cost of the goods sold totaled $8,200 j. Employee wages for the month totaled $2,000; these will be paid during the first week of the next month. k. The firm collected a total of $3,500 from the sales on account recorded in transaction i. 1. The firm paid a total of $4,900 of the amount owed to suppliers from transaction e. Required: a. Record each transaction in the appropriate columns. Indicate the financial statement effect. b. Calculate the total assets, liabilities, and stockholders' equity at the end of the month and calculate the amount of net income for the month c. After completing parts a through I prepare an income statement for Blue Co. Stores Inc. for the month presented and a balance sheet at the end of the month.

Answer 1

Blue Co. Stores Inc. Requirement a Assets + Trans. Cash Expense = Net Income a. 8900 + Liabilities Stockholders Equity + Accounts Receivable + Inventory + Equipment = Accounts Payable + Wages Payable + Note Payable + Common Stock + Retained Earnings Revenue 8900 4700 1500 + + + + + + b. 4700 + + + + + + + c. - 1500 + + + + + + + d. + + + + + + + 1300 -1300 Rent Expense -1300 -8600 5600 + + + = 5800 + + + e. f. + 14400 -3700 + + + + + + + 5600 1900 3700 120 Sales & Cost of good sold Advertisement Expense + + + + + + + - 120 120 2850 h. - 1250 + + 4100 + + + + + i. 3850 + 9900 + -8200 + + + + + 13750 5550 8200 2000 Sales & Cost of good sold Wages Expense + + + + 2000 + + + -2000 3500 + -3500 + + = + + + + j. k. 1. Totals -4900 + + + -4900 + + + + = 9000 + 6400 + 6600 + 1500 3870 + 2000 + 4700 + 8900 + 0 19350 15320 4030 23500 23500 Requirement b 23500 10570 Total Assets Total Liabilities Total Stockholders Equity Net Income 12930 4030

Requirement 19350 -11900 7450 Statement of Income For the Month ending ... Sales Cost of goods sold Gross Margin Less:Expenses Rent Expense Advertisement Expense Wages Expense Net Income 1300 120 2000 3420 4030 Balance sheet As at... Assets Current Assets Cash Accounts Receivable Inventory 9000 6400 6600 22000 Property, Plant & Equip. Equipment Total Assets 1500 23500 Liabilities & Equity Current Liabilities Accounts Payable Wages Payable Note Payable 3870 2000 4700 10570 8900 Shareholders Equity Common Stock Retained Earnings Total Liabilities & Equity 4030 12930 23500