Question

The following transactions apply to Ozark Sales for Year 1: 1. The business was started when the company received $48.500 from the issue of common stock 2. Purchased equipment inventory of $176,500 on account 3. Sold equipment for $195,500 cash (not including sales tax). Sales tax of 7 percent is collected when the merchandise is sold. The merchandise had a cost of $120,500. 4. Provided a six-month warranty on the equipment sold. Based on industry estimates, the warranty claims would amount to 5 percent of sales 5. Paid the sales tax to the state agency on $145,500 of the sales 6. On September 1 Year 1, borrowed $20,000 from the local bank. The note had a 6 percent interest rate and matured on March 1, Year 2 7. Paid $5,700 for warranty repairs during the year. 8. Pald operating expenses of $56,000 for the year 9. Paid $125.900 of accounts payable. 10. Recorded accrued interest on the note issued in transaction no. 6. Required a. Show the effects of these transactions on the financial statements using a horizontal statements model (Use a to indicate increase or a - for decrease. In the Statement of Cash Flows column, indicate whether the item is an operating activity (OA), investing activity (1A), or financing activity (FA). Columns for events that have no effect on any of the elements should be left blank.) (Note: Not all cells will require an input.) Event Assets - Liabilities - Equity Revenue - Expenses - Not income Statement of Cash Flows < Prey 1 of 3 Next >

Answer 1

Ozark Sales

Journal Entry

Event

Assets

=

Liabilties

+

Equity

Revenues

-

Expenses

=

Net income

Cash Flow Statement

Debit

Credit

1

+

+

+

FA

Cash

Common Stock

2

+

+

Inventory

Accounts Payable

3a

+

+

+

+

+

+

OA

Cash

Sales & Sales Tax Payable

3b

-

-

+

-

Cost of goods sold

Inventory

4

+

-

+

-

Warranty expense

Warranty Payable

5

-

-

-

OA

Sales Tax Payable

Cash

6

+

+

+

FA

Cash

Note Payable

7

-

-

-

OA

Warranty Payable

Cash

8

-

-

+

-

-

OA

Operating expenses

Cash

9

-

-

-

OA

Accounts Payable

Cash

10

+

-

+

-

Interest expense

Interest Payable

Alpha Company
Balance Sheet
As of Dec 31, Year 1
Assets
Current Assets
Cash	14,880
Accounts Receivable	41,960
Merchandise Inventory	29,400
Total Current Assets		86,240
Property, Plant & Equipment
Land	28,420
Total Property, Plant & Equipment		28,420
Total Assets		114,660
Liabilities & Stockholders Equity
Current Liabilities
Accounts Payable		7,455
Long-term Liabilties
Long term notes payable		24,500
Total Liabilties		31,955
Stockholders Equity
Common Stock	41,000
Retained earnings	41,705
Total Stockholders Equity		82,705
Total Liabilities & Stockholders Equity		114,660

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