Question

QUESTION:

A normal sale of inventory increases net assets (i.e., shareholders' equity).

o True

o False

1. Use the template below to indicate how the following transactions affect the accrual-basis accounting equation: a. Kissimmee, Inc. (a retail store) begins business on January 1, 2015 with a $100,000 cash contribution from the owners. b. On January 1, 2015, Kissimmee hires ſive employees to manage and operate the business. c. On January 1, 2015, Kissimmee prepays the monthly rent of $500 cash. d. On January 27, 2015, Kissimmee issues a 12% note payable to purchase warehouse equipment for $10,000, e. On January 10, 2015, Kissimmee purchases goods from a wholesaler for $2,500 cash, and sells the goods on the same day $4,500 cash. f. On January 15, 2015, Kissimmee pays wages due employees in the amount of $750 cash. g. On January 20, 2015, Kissimmee pays various utility expenses in the amount of $400 cash. h. On January 25, 2015, Kissimmee purchases goods on credit from a wholesaler in the amount of $1,000. a customer for Transaction rcfcrcncc Assets Prepaid Inventory Rent Liabilities Accounts Notcs Pavable Payable Shareholders' Equity Contributed Capital Revenlic (+) Expenses (-) Cash PP&E $100.000 $100,000 a b $4500) $500 $10.000 $10.000 $4,500 d d cil) 012) f $4.500 $(2.500) $(750) $(400) $2.500 $750 $400 4 h $1.000 $1.000 Totals $100.350 $1.000 $500 $10,000 = $1.000) $10.000 $100.000 $4,500 $3,650

Answer 1

Answer is as follows:

Correct Option: True

The inflow from normal sale of inventory results in increase of net assets. The revenue from sales results in increase of net assets (i.e,. Shareholders' equity) in the form of inflow of cash or other assets. It results in increase of income and assets of the entity.

Entry: Cash / Accounts receivable A/c Dr

To Sales Revenue A/c

Sale of inventory also results in decrease of inventory to the extent of cost of such sold inventory.