The following transactions apply to Ozark Sales or 2016. 1. The business wa star

Question

The following transactions apply to Ozark Sales or 2016.

1. The business wa started when the company received $50,000.00 from the issue of common stock.

2. Purchased equipment invemtory of $380,000.00 on account.

3. Sold equpment for $510,000.00 cash(not inculding sales tax). Sales tax of 8 percent is collected when the merchandise is sold. The merchandise has a cost of $330,000.00.

4. Provided a six-month warrenty on the equipment sold. Based on industry estimates, the warrenty claims would amount to 2 percent of sales.

5. Paid the sales tax to the state agency of $400,000.00 of the sales.

6. On September 1, 2016, borrowed $50,000.00 from the local bank. The note had a 4 percent interest rate and mature on March 1, 2017.

7. Paid $6200.00 for warrenty repairs during the year.

8. Paid operating expenses of $78,000.00 for the year.

9. Paid $250,000.00 of accounts payable.

10. Recorded accrued interest on the note issued in transaction no. 6.

Rquired:

a. Show the effect of these transactions of the financial statements using a horizontal statements model like the one shown. Use + for increase and - for decrease, and NA for not affected. In the Cash Flow column, indicate whether the item is an operating activity(OA), inveting activity(IA), or financing activity(FA). The first transaction is recorded as an example. Assets = Liabilities + Equity Revenue - Expense = Net Income Cash Flow + NA + NA NA NA + FA

b. Prepare the journal entries for the above transactions and post them to the appropiate T-accounts.

c. Prepare the income statements, balance sheet, and statement of cash flows for 2016.

d. What is the total amount of current liabilities at December 31, 2016?

Explanation / Answer

Tran. No Assets = Liabilities + Equity revenue - Expenses Net Income Cash Flow 1 50000 NA 50000 Na Na Na FA 2 380000 NA NA NA NA NA NA NA OA 3 -380000 -330000 330000 -330000 OA 550800 40800 510000 510000 OA 4 10200 10200 -10200 OA 5 -32000 -32000 OA 6 50000 50000 FA 7 -6200 -6200 OA 8 -78000 78000 -78000 OA 9 -250000 -250000 OA 10 667 667 -667 OA rounded off Net Income 91133 Ans b Accounts title Dr Cr 1 Cash $50,000 Common Stock 50000 (Being cash received from issue of common stock) 2 Equipment Inventory 380000 Accounts payable 380000 (Being inventoey purchased on account) 3 Cash 550800 Sales 510000 Sales Tax Liability (510000*.08) 40800 (Being sales made on cash and sales tax libilitu credited) 4 Warranty Expense (510000*.02) 10200 Warranty Liability 10200 (Being warranty liability created) 5 Sales Tax Liability ($400000*.02) 32000 Cash 32000 6 Cash $50,000 Note payable $50,000 7 Warranty Liability 6200 cash 6200 8 Operating expenses 78000 Cash 78000 9 Accounts payable 250000 cash 250000 (Being cash paid0 10 Interest Expense (50000*4%*4/12) 667 Interest Payable 667 Ans c Income Statement as on 31 December 2016 Sales 510000 Cost of good sold -330000 Gross profit 180000 Less: Opearting expenses 78000 Interest Expense 667 Warranty Expense 10200 10867 Net nIncome 91133 Balance sheet Assets Current assets Cash 284600 Equipment Invenory 50000 Total assets 334600 Current Liabilities Accounts Payable (380000-250000) 130000 Notes payable 50000 Warranty Liability 4000 Interest Payable 667 Sales Tax Liability (40800-32000) 8800 Total Current Liabilities 193467 Stockho;der Equity Common Stock 50000 Retained earnings 91133 Stockholder Equity 141133 Total liabilities & Equity 334600 Cash 50000+550800-32000+50000-250000-6200-78000 284600 Statement of Cash Flow Cash From Operating Activities Received from customer 550800 Paid to creditor -250000 Paid for operating Expensses -78000 Paid for sales tax and warranty -38200 Cash From Operating Activities 184600 Cash Flow from Financing activity Issue of common Stock 50000 Borrowings Short term notes payab;e 50000 Cash Flow from Financing activity 100000 Total Cash flow 284600 Ans d Total Current Liabilities 193467

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