Chapter 3, Problem 4E

Exercise 3-4 Effect of inventory transactions on the income statement and statement of cash flows: Perpetual system

During 2018, Hardy Merchandising Company purchased $40,000 of inventory on account. Hardy sold inventory on account that cost $24,500 for $38,000. Cash payments on accounts payable were $22,000. There was $26,000 cash collected from accounts receivable. Hardy also paid $5,100 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 record them in a horizontal statements model like the following one.

b. What is the balance of accounts receivable at the end of 2018?

c. What is the balance of accounts payable at the end of 2018?

d. What are the amounts of gross margin and net income for 2018?

e. Determine the amount of net cash flow from operating activities.

f. Explain why net income and retained earnings are the same for Hardy.

g. Normally would these amounts be the same? Why or why not?