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During Year 1, Hardy Merchandising Company purchased $24,000 of inventory on account. Hardy sold inventory on account that cost $18,000 for $27,000. Cash payments on accounts payable were $15,000. There was $24,000 cash collected from accounts receivable. Hardy also paid $4,400 cash for operating expenses. Assume that Hardy started the accounting period with $20,000 in both cash and common stock. Required a. Identify the events described in the preceding paragraph and show them in a horizontal statements model. The first event is recorded as an example. b. What is the balance of accounts receivable at the end of Year 1? c. What is the balance of accounts payable at the end of Year 1? d. What are the amounts of gross margin and net income for Year 1? e. Determine the amount of net cash flow from operating activities.

During Year 1, Hardy Merchandising Company purchased $24,000 of inventory on account. Hardy sold inventory on account that cost $18,000 for $27,000. Cash payments on accounts payable were $15,000. There was $24,000 cash collected from accounts receivable. Hardy also paid $4,400 cash for operating expenses. Assume that Hardy started the accounting period with $20,000 in both cash and common stock. Required a. Identify the events described in the preceding paragraph and show them in a horizontal statements model. The first event is recorded as an example. b. What is the balance of accounts receivable at the end of Year 1? c. What is the balance of accounts payable at the end of Year 1? d. What are the amounts of gross margin and net income for Year 1? e. Determine the amount of net cash flow from operating activities.

FINANCIAL ACCOUNTING
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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### Understanding Basic Accounting Transactions: An Example from Hardy Merchandising Company #### Problem Statement During Year 1, Hardy Merchandising Company undertook several key financial transactions. These included: 1. Purchasing $24,000 of inventory on account. 2. Selling inventory on account that cost $18,000 for $27,000. 3. Making cash payments on accounts payable amounting to $15,000. 4. Collecting $24,000 cash from accounts receivable. 5. Paying $4,400 cash for operating expenses. Assume that Hardy started the accounting period with $20,000 in both cash and common stock. #### Required Tasks To better understand the financial outcomes of Hardy Merchandising Company, we need to: 1. Identify the events in the preceding paragraph and show them in a horizontal statements model. (The first event is provided as an example.) 2. Determine the balance of accounts receivable at the end of Year 1. 3. Ascertain the balance of accounts payable at the end of Year 1. 4. Calculate the amounts of gross margin and net income for Year 1. 5. Determine the amount of net cash flow from operating activities. #### Instructions *- Complete the questions by entering answers in the tabs provided.* --- ### Example Event Identification Let’s break down the first event provided: - **Event 1:** Purchase $24,000 of inventory on account. - Increase Inventory by $24,000 - Increase Accounts Payable by $24,000 ### Key Financial Calculations #### a. Horizontal Statements Model Below is how you would structure a horizontal statements model based on the events provided: 1. **Purchase Inventory** - Inventory: +$24,000 - Accounts Payable: +$24,000 2. **Sell Inventory** - Cost of Goods Sold: +$18,000 - Revenue: +$27,000 - Inventory: -$18,000 - Accounts Receivable: +$27,000 3. **Pay Accounts Payable** - Cash: -$15,000 - Accounts Payable: -$15,000 4. **Collect Accounts Receivable** - Cash: +$24,000 - Accounts Receivable: -$24,000 5. **Operating Expenses** - Cash: -$4,400 - Operating Expenses: +$4
Transcribed Image Text:### Understanding Basic Accounting Transactions: An Example from Hardy Merchandising Company #### Problem Statement During Year 1, Hardy Merchandising Company undertook several key financial transactions. These included: 1. Purchasing $24,000 of inventory on account. 2. Selling inventory on account that cost $18,000 for $27,000. 3. Making cash payments on accounts payable amounting to $15,000. 4. Collecting $24,000 cash from accounts receivable. 5. Paying $4,400 cash for operating expenses. Assume that Hardy started the accounting period with $20,000 in both cash and common stock. #### Required Tasks To better understand the financial outcomes of Hardy Merchandising Company, we need to: 1. Identify the events in the preceding paragraph and show them in a horizontal statements model. (The first event is provided as an example.) 2. Determine the balance of accounts receivable at the end of Year 1. 3. Ascertain the balance of accounts payable at the end of Year 1. 4. Calculate the amounts of gross margin and net income for Year 1. 5. Determine the amount of net cash flow from operating activities. #### Instructions *- Complete the questions by entering answers in the tabs provided.* --- ### Example Event Identification Let’s break down the first event provided: - **Event 1:** Purchase $24,000 of inventory on account. - Increase Inventory by $24,000 - Increase Accounts Payable by $24,000 ### Key Financial Calculations #### a. Horizontal Statements Model Below is how you would structure a horizontal statements model based on the events provided: 1. **Purchase Inventory** - Inventory: +$24,000 - Accounts Payable: +$24,000 2. **Sell Inventory** - Cost of Goods Sold: +$18,000 - Revenue: +$27,000 - Inventory: -$18,000 - Accounts Receivable: +$27,000 3. **Pay Accounts Payable** - Cash: -$15,000 - Accounts Payable: -$15,000 4. **Collect Accounts Receivable** - Cash: +$24,000 - Accounts Receivable: -$24,000 5. **Operating Expenses** - Cash: -$4,400 - Operating Expenses: +$4
**Event Identification and Recording in a Horizontal Statements Model** **Instructions:** Identify the events described and record them in a horizontal statements model. The first event is recorded as an example. In the Cash Flow column, "IA" represents investment activities, "OA" operating activities, "FA" financing activities, "NC" for net change in cash, and "NA" for not affecting cash. Record any decreases to account balances with a minus sign. **Company: HARDY MERCHANDISING COMPANY** **Title: Effect of Events on the Financial Statements** --- **Balance Sheet** | Events | Assets | Liabilities | Stockholders' Equity | Income Statement | Statement of Cash Flows | |-------------|-------------------|------------------|----------------------|------------------|-------------------------| | | Cash | + Accounts Receivable | + Inventory | = Accounts Payable | + Common Stock | + Retained Earnings | Revenue | - Expenses | = Net Income | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Beg. bal. | 20,000 | | | | | 20,000 | | | | NA | | Pur. inv. | | | | | | | | | | | | Sold inv. | | | | | | | | | | | | Inv. cost | | | | | | | | | | | | Pd. AP | | | | | | | | | | | | Coll. AR | | | | | | | | | | | | Pd. exp. | | | | | | | | | | | | End. bal. | | | | | | | | | | | --- **Graph/Diagram Explanation:** - **Events Column:** Lists the financial events affecting the company's balance sheet and income statement. - **Balance Sheet:** - **Assets:** Includes "Cash," "Accounts Receivable," and "
Transcribed Image Text:**Event Identification and Recording in a Horizontal Statements Model** **Instructions:** Identify the events described and record them in a horizontal statements model. The first event is recorded as an example. In the Cash Flow column, "IA" represents investment activities, "OA" operating activities, "FA" financing activities, "NC" for net change in cash, and "NA" for not affecting cash. Record any decreases to account balances with a minus sign. **Company: HARDY MERCHANDISING COMPANY** **Title: Effect of Events on the Financial Statements** --- **Balance Sheet** | Events | Assets | Liabilities | Stockholders' Equity | Income Statement | Statement of Cash Flows | |-------------|-------------------|------------------|----------------------|------------------|-------------------------| | | Cash | + Accounts Receivable | + Inventory | = Accounts Payable | + Common Stock | + Retained Earnings | Revenue | - Expenses | = Net Income | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Beg. bal. | 20,000 | | | | | 20,000 | | | | NA | | Pur. inv. | | | | | | | | | | | | Sold inv. | | | | | | | | | | | | Inv. cost | | | | | | | | | | | | Pd. AP | | | | | | | | | | | | Coll. AR | | | | | | | | | | | | Pd. exp. | | | | | | | | | | | | End. bal. | | | | | | | | | | | --- **Graph/Diagram Explanation:** - **Events Column:** Lists the financial events affecting the company's balance sheet and income statement. - **Balance Sheet:** - **Assets:** Includes "Cash," "Accounts Receivable," and "
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