Question

Following are the transactions and adjustments that occurred during the first year of operations at Kissick Co. a. Issued 197,000 shares of $5-par-value common stock for $985,000 in cash. b. Borrowed $500,000 from Oglesby National Bank and signed a 10% note due in three years. c. Incurred and paid $400,000 in salaries for the year. d. Purchased $700,000 of merchandise inventory on account during the year. e. Sold inventory costing $580,000 for a total of $910,000, all on credit. f. Paid rent of $110,000 on the sales facilities during the first 11 months of the year. g. Purchased $180,000 of store equipment, paying $50,000 in cash and agreeing to pay the difference within 90 days. h. Paid the entire $130,000 owed for store equipment and $600,000 of the amount due to suppliers for credit purchases previously recorded. i. Incurred and paid utilities expense of $37,000 during the year. j. Collected $855,000 in cash from customers during the year for credit sales previously recorded. k. At year-end, accrued $50,000 of interest on the note due to Oglesby National Bank. 1. At year-end, accrued $10,000 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 a T-account for the Cash account since it is affected by most of the transactions.)

Answer 1

$1,013,000 $55,000 $120,000 $1,188,000 $180,000 $1,368,000 KISSICK, CO. Balance Sheet December 31 Assets Current Assets Cash Accounts Receivable Merchandise Inventory Total Current Assets Property Plant and Equipment Store Equipment Total Assets Liabilities and Owner's Equity Current liabilities Accounts Payable $100,000 Interest Payable $50,000 Rent Payable $10,000 Total current liabilities Long-term liabilities Notes Payable (due in three years) Total liabilities Stockholders' equity Common Stock (55 par-value) $985,000 Retained Earnings -$277,000 Total Shareholder's equity Total Liabilities & Owner Equity $160,000 $500,000 $660,000 $708.000 $1,368,000 Workings: KISSICK, CO. Income Statement For the year ended Dcember 31 Sales Revenue Less: Cost of goods Sold Gross profit Less: Operating expenses Salaries expense $400,000 Rent expense $120,000 Utilities expense $37,000 Interest expense $50,000 Net Income (Loss) $910,000 $580.000 $330,000 $607.000 $277,000 $985,000 $500,000 $855,000 $2,340,000 KISSICK, CO. Cash Account Cash Received: Cash from common stock Cash from long term Note Cash from customer Total Cash Received (A) Cash Payment: Salaries expensee Rent expenses Purchase of store equipment Payment to suppliers Utilities expenses Total cash Payments (B) $400,000 $110,000 $180,000 $600,000 $37.000 $1,327,000 Cash Transfer to balance sheet (A - B) $1,013,000