FACTS: 1. Both companies begin operations by exchanging stock for $10,000 in cas

ID: 2511265 • Letter: F

Question

FACTS:

1. Both companies begin operations by exchanging stock for $10,000 in cash and 300 widgets. The widgets had a value of $30,000.

2. Transactions - all on a cash basis.

Year One Year Two

Sales $ 200,000 - a $322,500 - c

Purchases $112,500 - b $224,000 - d

Expenses $ 50,000 $ 80,000

a. 1000 units

b. 900 units at a cost of $125/unit

c. 1500 units

d. 800 units @ $130 per unit, next 800 more units @ a cost of $150 per unit

3. Tax Rate - 40%(assume taxes are paid on December 31stor the current year – not probable, but works for us)

REQUIRED:Prepare income statements for both companies for year one and year two, also do a balance sheet as of the end of year two.

Income statement for year one

A. Sales 200000

B. Cost of Sales

Purchases 112500

Expenses 50000

162500

Less: Closing stock(12500) 100 units*125

150000

C. Profit(A-B) 50000

Less:tax 40% (20000)

Profit after tax 30000

Income statement for year two

A. Sales 322500

B. Cost of Sales

Purchase 224000

Expenses 80000

ADD: Opening stock 12500

Less: Closing Stock (15000) 100*150

301500

C. Profit before tax(A-B) 21000

Less: Tax (8400)

Profit after tax 12600

Balance sheet can not be prepared without sufficient information

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