Answered: 6. Purchased $189,000 of inventory on…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Learning Case #3
Chapter 3

THIS IS A CONTINUATION OF LC 2B.

Hawking, Inc. had the following activities occur in the current year:

6. Purchased $189,000 of inventory on account.
7. Earned $536,000 worth of sales revenue, receiving 85% in cash.
8. Incurred selling expenses of $210,000, paying half in cash and still owing the rest.
9. Incurred $33,000 in interest expense to be paid at the beginning of next year.

Required
a) Show the effects of the above transactions on the accounting equation. Use the
transaction number for the date.
b) Prepare journal entries for each transaction.
c) Post journal entries to the general ledger/T-accounts, summarize accounts, and find
balances.
d) Prepare an unadjusted trial balance.
e) Match your numbers to the prepared financial statements: Income Statement, Retained
Earnings Statement, and Balance Sheet.

Chapter 3 Learning Case
Analyzing Transactions
Date Assets Liaiblities Stockholder's Equity

Chapter 3 Learning Case
General Journal
Date Account Title/Explanation Debit Credit

Chapter 3 Learning Case
General Ledger Accounts
Date Description Debit Credit Balance
1. Common Stock sale 700,000
2. Building/Equipment purchase 200,000
3. Short-term investment purchase 10,000
5. Short-term investment sale 5,000
Date Description Debit Credit Balance
Date Description Debit Credit Balance
3. Short-term investment purchase 10,000
5. Short-term investment sale 5,000
Inventory
Date Description Debit Credit Balance
Cash
Accounts Receivable
Short-Term Investments

Date Description Debit Credit Balance
2. Building purchase 175,000
Date Description Debit Credit Balance
2. Equipment purchase 80,000
Date Description Debit Credit Balance
Date Description Debit Credit Balance
Date Description Debit Credit Balance
2. Building/Equipment purchase 55,000
Date Description Debit Credit Balance
1. Common Stock sale 700,000
Interest Payable
Accounts Payable
PPE-Equipment
PPE-Buildings
Note Payable
Common Stock

Chapter 3 Learning Case
Unadjusted Trial Balance
Account Debit Credit
Cash
Accounts Receivable
Short-Term Investments
Inventory
PPE-Buildings
PPE-Equipment
Accounts Payable
Interest Payable
Note Payable
Common Stock
Dividends
Retained Earnings
Sales Revenue
Selling Expense
Interest Expense

Chapter 3 Learning Case
Financial Statements
Revenues: $536,000
Expenses:
Selling Expenses (210,000)
Interest Expense (33,000)
Net Income $293,000
Beginning RE $0
Add: Net Income 293,000
Less: Dividends 0
Ending RE $293,000
Balance Sheet
Assets Liabilities and Stockholders' Equity
Current Assets Current Liabilities
Cash $845,600 Accounts Payable $294,000
Accounts Receivable 80,400 Interest Payable 33,000
ST Investments 5,000 Total Current Liabilities $327,000
Inventory 189,000 Long-Term Liabilities
Total Current Assets $1,120,000 Note Payable $55,000
Total Liabilities $382,000
PPE
Buildings $175,000
Equipment 80,000 Stockholders' Equity
Less: Acc. Dep 0 Common Stock $700,000
Total PPE $255,000 Retained Earnings 293,000
Total Assets $1,375,000 Total Stockholders' Equity $993,000
Total Liabilities and Stockholders' Equity $1,375,000
Income Statement

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Expert Solution

Step 1

Solution

Qa.

Accounting Equation is defined as relation ship as shown by various accounts as

Asset= liability+Equity

Cost of Goods sold= opening balance +purchase-Closing Stock

In the question , Accounting payable=Purchase+Selling expenses-cash=189000+210000-105000=294000

Similarly , Accounting recievable=Sale-cash-bank=536000-455600-80400=Nil

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