Northwest Sales had the following transactions in Year 1: The business was started when it acquired $58,500 cash from the issue of common stock. Northwest purchased $185,000 of merchandise for cash in Year 1. During the year, the company sold merchandise for $198,220. The merchandise cost $109,021. Sales were made under the following terms: a. Cash sales $48,870 b. Credit card sales (The credit card company charges a $2.25 percent service fee.) $139,520 c. Sales on account $9,830 The company collected all the amount receivable from the credit card company. The company collected $9,044 of accounts receivable. The company paid $40,927 cash for selling and administrative expenses. Determined that 3.75 percent of the ending accounts receivable balance would be uncollectible. Required Show the effects of each of the transactions on the elements of the financial statements, using a horizontal statements model. Use + for increase, − for decrease, and leave blank for not affected. In the Statement of Cash Flows column, indicate whether the item is an operating activity (OA), investing activity (IA), or financing activity (FA). Leave blank to indicate that an element was not affected by the event. The first transaction is entered as an example. (Hint: Closing entries do not affect the statements model.) Prepare general journal entries for each of the transactions and post them to T-accounts. Prepare an income statement, statement of changes in stockholders’ equity, balance sheet, and statement of cash flows for Year 1.

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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Northwest Sales had the following transactions in Year 1:

The business was started when it acquired $58,500 cash from the issue of common stock.
Northwest purchased $185,000 of merchandise for cash in Year 1.
During the year, the company sold merchandise for $198,220. The merchandise cost $109,021. Sales were made under the following terms:

a. Cash sales $48,870
b. Credit card sales (The credit card company charges a $2.25 percent service fee.) $139,520
c. Sales on account $9,830

The company collected all the amount receivable from the credit card company.
The company collected $9,044 of accounts receivable.
The company paid $40,927 cash for selling and administrative expenses.
Determined that 3.75 percent of the ending accounts receivable balance would be uncollectible.

Required

Show the effects of each of the transactions on the elements of the financial statements, using a horizontal statements model. Use + for increase, − for decrease, and leave blank for not affected. In the Statement of Cash Flows column, indicate whether the item is an operating activity (OA), investing activity (IA), or financing activity (FA). Leave blank to indicate that an element was not affected by the event. The first transaction is entered as an example. (Hint: Closing entries do not affect the statements model.)
Prepare general journal entries for each of the transactions and post them to T-accounts.
Prepare an income statement, statement of changes in stockholders’ equity, balance sheet, and statement of cash flows for Year 1.

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