Question

Below are the transactions and adjustments that occurred during the first year of operations at Kissick Co

1. Issued 196,000 shares of $5-par-value common stock for $980,000 in cash.

2. Borrowed $540,000 from Oglesby National Bank and signed a 10% note due in three years.

3. Incurred and paid $390,000 in salaries for the year.

4. Purchased $730,000 of merchandise inventory on account during the year.

5. Sold inventory costing $590,000 for a total of $900,000, all on credit.

6. Paid rent of $220,000 on the sales facilities during the first 11 months of the year.

7. Purchased $160,000 of store equipment, paying $53,000 in cash and agreeing to pay the difference within 90 days.

8. Paid the entire $107,000 owed for store equipment and $600,000 of the amount due to suppliers for credit purchases previously recorded.

9. Incurred and paid utilities expense of $37,000 during the year.

10. Collected $855,000 in cash from customers during the year for credit sales previously recorded.

11. At year-end, accrued $54,000 of interest on the note due to Oglesby National Bank.

12. At year-end, accrued $20,000 of past-due December rent on the sales facilities.

Required:

a. Prepare an income statement (ignoring income taxes) for Kissick Co.'s first year of operations and a balance sheet as of the end of the year. (Hint: You may find it helpful to prepare T-accounts for each account affected by the transactions.)(Amounts to be deducted and net loss should be indicated with minus sign.)

Answer 1

Income statement
For the year 1 ended
Sales		900000
Cost of goods sold		590000
Gross Margin		310000
Less:Expenses
Salaries expense	390000
Rent expense	240000
Utilties expense	37000
Interest expense	54000	721000
Net income		-411000

Balance sheet
current assets
Cash	968000
Accounts receivable	45000
Inventory	140000
total current assets		1153000
Non current assets
Equipment		160000
toal assets		1313000
Current liabilties
Accounts payable		204000
total current liabilties		204000
Long term liabilties
Notes payable		540000
total liabilities		744000
Stockholders equity
Common stock	980000
retained earnings	-411000
Total Stockholders equity		569000
total liabilties equity		1313000

working:

Equity R/E Assets Liabilities inventory Equipment Cash A/R Notes payable AP Common stock Net Income Revenue S.no Expense 980000 980000 a 4 b 540000 540000 390000 -390000 390000 5 d 7 e 730000 730000 900000 900000 900000 -590000 -590000 590000 f -220000 220000 220000 160000 O g 1 h 2 i 3 i 4 k -53000 107000 -707000 0= 37000= 707000 37000 37000 855000 -855000 -54000 -20000 54000 54000 5 I 20000 20000 + -411000 968000 204000 16 total 45000 140000 160000 540000 980000 900000 1311000