Question

Ho Designs experienced the following events during Year 1, its first year of operation: 1. Started the business when it acquired $70,000 cash from the issue of common stock. 2. Paid $41,000 cash to purchase inventory. 3. Sold inventory costing $37,500 for $56,200 cash. 4. Physically counted inventory, had inventory of $3,200 on hand at the end of the accounting period. Required a. Record the events in the T-accounts provided. b. Prepare an income statement and balance sheet.

Answer 1

1. Cash

Beg.Bal
1	$70,000	$41,000	2
3	$56,200
End.Bal	$85,200

Common Stock

Beg.Bal		$0
		$70,000	1
End. Bal		$70,000

Merchandise Inventory

Beg.Bal	$0
2	$41,000	$37,500	3
Bal.	$3,500
		$3,200	4
End. Bal	$300

Sales Revenue

Beg.Bal		$0
		$56,200	3
End.Bal		$56,200

Cost of Goods Sold

Beg.Bal
3	$37,500
4	$3,200
End.Bal	$40,700

2. Ho Designs Income Statement For the Year Ended December 31, Year 1

Net Sales	$56,200
Cost of Goods Sold	$40,700
Gross Profit	$15,500
Operating Expenses	$0
Net Income	$15,500

3. HO Designs Balancesheet December 31, Year 1

Assets;
Cash	$85,200
Merchandise Inventory	$300
Total Assets		$85,500
Liabilities		$0
Stockholders Equity;
Common Stock	$70,000
Retained Earnings	$15,500
Total Stockholders Equity		$85,500
Total Liabilities and Stockholders Equity		$85,500