Hilo Clothing experienced the following events during 2014, its first year of op

Question

Hilo Clothing experienced the following events during 2014, its first year of operation: Acquired $25,000 cash from the issue of common stock. Purchased inventory for $12,000 cash. Sold inventory costing $8,000 for $15,000 cash. Paid $1, 200 for advertising expense. Required Record the events in a statements model like the one shown below. In the Cash Flow column, use OA to designate operating activity, IA for investment activity, FA for financing activity, NC for net change in cash and NA to indicate the element is not affected by the event.(Enter any decreases to account balances and cash outflows with a minus sign.)

Explanation / Answer

Hilo Clothing Effects of events on financial statements Event Assets = Stockholders' Equity Revenue - Expenses = Net Income Statement of Cash Flows Cash + Inventory = Common Stock + Retained earnings 1       25,000.00 +                               -   =               25,000 +                -   - = FA 2     (12,000.00) +                      12,000 =                        -   +                -                     -   - = OA 3a       15,000.00 + = +          15,000 - =           15,000 OA 3b +                      (8,000) = + -          8,000 =           (8,000) OA 4       (1,200.00) + = + -          1,200 =           (1,200) OA Total       26,800.00                  4,000.00         25,000.00                -      15,000.00    9,200.00        5,800.00

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