Question

The following information is available for two different types of businesses for the Year 1 accounting year. Hopkins CPAs is a service business that provides accounting services to small businesses. Sports Clothing is a merchandising business that sells sports clothing to college students. Data for Hopkins CPAS 1. Borrowed $90,000 from the bank to start the business 2. Provided $50,000 of services to clients and collected $50,000 cash, 3. Pald salary expense of $32,000. Data for Sports Clothing 1. Borrowed $90,000 from the bank to start the business. 2. Purchased $50,000 inventory for cash. 3. Inventory costing $26,000 was sold for $50,000 cash. 4. Paid $8,000 cash for operating expenses. Required a. Prepare an income statement, balance sheet, and statement of cash flows for each of the companies. (Statement of Cash Flows only, items to be deducted must be indicated with a negative amount.) HOPKINS CPAS Income Statement For the Year Ended December 31, Year 1 Revenue Expenses

Answer 1

A. Hopkins CPA's

1. Journal Entries -

Date Credit Hopkins CPA's Journal Entries Accounts Title Debit Cash $ 90,000 Notes Payable (Being cash received and notes issued) 1 $ 90,000 2 Cash $ 50,000 Service Revenue (Being Service revenue earned) $ 50,000 3 Salary Expense $ 32,000 Cash (Being Salary Expense Paid) $ 32,000

2. Income Statement -

Hopkins CPA's Income Statement For the Year Ended December 31, Year 1 Revenue Service Revenue $ 50,000 Expenses: Salary Expense $ 32,000 Net Income $ 18,000

3. Balance Sheet -

Hopkins CPA's Balance Sheet As of December 31, Year 1 Assets Cash $ 108,000 Total Assets $ 108,000 Liabilities Notes Payable $ 90,000 Stockholder's Equity Retained Earnings $ 18,000 Total Liabilities & Stockholder's Equity $ 108,000

4. Statement of Cash Flow -

Hopkins CPA's Statement of Cash Flow As of December 31, Year 1 Cash Flow From Operating Activities Cash From Customers $ 50,000 Cash Paid to Employees $(32,000) Net Cash Flow From Operating Activities $ 18,000 Cash Flow From Investing Activities Net Cash Flow From Investing Activities Cash Flow From Financing Activities Proceeds from Notes Payable $ 90,000 Net Cash Flow From Financing Activities $ 90,000 Change in Cash $ 108,000

A. Sports Clothing

1. Journal Entries -

Date Credit Sports Clothing Journal Entries Accounts Title Debit Cash $ 90,000 Notes Payable (Being cash received and notes issued) 1 $ 90,000 2 Inventory $ 50,000 Cash (Being inventory purchased for cash) $ 50,000 3 Cash $ 50,000 Sales Revenue (Being Sales Revenue Earned) $ 50,000 Cost of Good Sold $ 26,000 Inventory (Being Cost of Good Sold incurred) $ 26,000 4 Operating Expense $ 8,000 Cash (Being Operating expense Paid) $ 8,000

2. Income Statement -

Sports Clothing Income Statement For the Year Ended December 31, Year 1 Sales Revenue $ 50,000 (-) Cost of Goods Sold $(26,000) Gross Profit $ 24,000 Operating Expense $ 8,000 Net Income $ 16,000

3. Balance Sheet -

Sports Clothing Balance Sheet As of December 31, Year 1 Assets Cash Inventory $ 82,000 $ 24,000 Total Assets $ 106,000 Liabilities Notes Payable $ 90,000 Stockholder's Equity Retained Earnings $ 16,000 Total Liabilities & Stockholder's Equity $ 106,000

4. Statement of Cash Flow -

Sports Clothing Statement of Cash Flow As of December 31, Year 1 Cash Flow From Operating Activities Cash From Customers $ 50,000 Cash Paid to Operating Expenses $ (8,000) Cash Paid to Suppliers $(50,000) Net Cash Flow From Operating Activities $ (8,000) Cash Flow From Investing Activities Net Cash Flow From Investing Activities Cash Flow From Financing Activities Proceeds from Notes Payable $ 90,000 Net Cash Flow From Financing Activities $ 90,000 Change in Cash $ 82,000