Question

Toby invested $30,000 from her retirement account, borrowed $20,000 from the bank and opened her landscaping business by buying $10,000 in equipment (expected to last 10 years) and $5,000 in inventory (lime, sod, stones, loam, etc.). Set up the balance sheet for this point in the formation. During the year, Toby made $100,000 in sales (30% for cash) and collected $60,000 in AR. She paid $20,000 in wages for a part time employee, sold $3,000 of inventory (included in the total sales of $100,000), paid $2,000 in insurance, paid $8,000 for gas, $1,000 in interest, $1,000 in taxes. She bought $4,000 in job materials (inventory that is used immediately) all on account but paid $1,000 off by year-end. Construct a balance sheet and income statement at this point for the firm.

Answer 1

Question: Toby invested $30,000 from her retirement account, borrowed $20,000 from the bank and opened her landscaping business by buying $10,000 in equipment (expected to last 10 years) and $5,000 in inventory (lime, sod, stones, loam, etc.). Set up the balance sheet in excel format for this point in the formation. During the year, Toby made $100,000 in sales (30% for cash) and collected $60,000 in AR. She paid $20,000 in wages for a part time employee, sold $3,000 of inventory (included in the total sales of $100,000), paid $2,000 in insurance, paid $8,000 for gas, $1,000 in interest, $1,000 in taxes. She bought $4,000 in job materials (inventory that is used immediately) all on account but paid $1,000 off by year-end. Construct a balance sheet and income statement in excel format at this point for the firm.

Below you'll find the answer to the problem.

Solution(s):

Income Statement
		$	$
	Sales Revenue	100,000
	Less: Cost of goods sold	(3,000)
	Gross income ( A )		97,000
	Less: Operating expenses;
	Wages	20,000
	Insurance expenses	2,000
	Gas	8,000
	Interest	1,000
	Taxes	1,000
	Total operating expenses (B )		32,000
	Net income ( A ) - ( B )		65,000
	Balance Sheet
	Owner's equity and liabilities	$	$
	Owner's Capital	30,000
	Add: Net income	65,000
	Total owner's equity		95,000
	Bank borrowings		20,000
	Current liabilities;
	Accounts Payable ( $ 4,000 - $ 1,000 )		3,000
	TOTAL EQUITY AND LIABILITIES		118,000
	Assets;
	Fixed Assets;
	Equipment		10,000
	Current assets;
	Inventory ( $ 5,000 + $ 4,000 - $ 3,000 )	6,000
	Accounts Receivable ( $ 100,000 x 70% - $ 60,000 )	10,000
	Cash ( See workings below )	92,000
	total current assets		108,000
	TOTAL ASSETS		118,000
	Working note;
	Cash balance	$
	Cash invested from retirement account	30,000
	Borrowed from bank	20,000
	Cash paid for equipment	(10,000)
	Paid for inventory	(5,000)
	Cash sales ( $ 100,000 x 30% )	30,000
	Collected from AR	60,000
	Wages paid	(20,000)
	Insurance paid	(2,000)
	paid for gas	(8,000)
	Interest paid	(1,000)
	Taxes paid	(1,000)
	paid against accounts payable	(1,000)
	Ending balance of Cash