Chapter 4, Problem 4.5E

Exercise 4.5

LO 2. 6, 7

Record transactions and calculate financial statement amounts The transactions relating to the formation of Blue Co. Stores, Inc., and its first month of operations follow. Prepare an answer sheet with the columns shown. Record each transaction in the appropriate columns of your answer sheet. Show the amounts involved and indicate how each account is affected (+ or After all transactions have been recorded, calculate the total assets, liabilities, and stockholders’ equity at the end of the month and calculate the amount of net income for the month.

a. The firm was organized and the stockholders invested cash of $ 16,000.

b.

The firm borrowed $ 10,000 from the bank; a short-term note was signed.

1. Display cases and other store equipment costing $3,500 were purchased for cash. The original list price of the equipment was $3,800, but a discount was received because the seller was having a sale.
2. A store location was rented, and $2,800 was paid for the first month’s rent.
3. Inventory of $30,000 was purchased; $18,000 cash was paid to the suppliers, and the balance will be paid within 30 days.
4. During the first week of operations, merchandise that had cost $8,000 was sold for $13,000 cash.
5. A newspaper ad costing $200 was arranged for; it ran during the second week of the store’s operations. The ad will be paid for in the next month.
6. Additional inventory costing $8,400 was purchased; cash of $2,400 was paid, and the balance is due in 30 days.

1. In the last three weeks of the first month, sales totaled $27,000, of which $19,200 was sold on account. The cost of the goods sold totaled $18,000.

j.Employee wages for the month totaled $3,700; these will be paid during the first week of the next month.

k.The firm collected a total of $6,320 from the sales on account recorded in transaction i.

l. The firm paid a total of $9,440 of the amount owed to suppliers from transaction e.

Answer sheet:

Assets = Liabilities + Stockholders' equity

Accounts Merchandise

Notes Accounts Paid-In Retained

Transaction Cash + Receivable + Inventory + Equipment = Payable + Payable + Capital + Earnings + Revenues - Expenses

Optional continuation of Exercise 4.5

Prepare an income statement and balance sheet After you have completed parts a through 1 in Exercise 4.5, prepare an income statement for Blue Co. Stores, Inc., for the month presented and a balance sheet at the end of the month using the captions shown on the answer sheet.