Exercise 3-3 Effect of inventory r Perpetual system LO 3-1 lustin Swords started
ID: 2568115 • Letter: E
Question
Exercise 3-3 Effect of inventory r Perpetual system LO 3-1 lustin Swords started a small merchandising business in 2014. The business experienced the following events during its first year of operation. Assume that Swords uses the perpetual inventory system. .Acquired $70,000 cash from the issue of common stock. 2. Purchased inventory for $60,000 cash. 3. Sold inventory costing $48,000 for $82,000 cash. Required t a. Record the events in a statements model like the one shown below. Equity Rev. - Exp. = Net Inc. CashFlow Assets Cash +Inv.Com. Stk. Ret. Earn. Prepare an income statement for 2014 (use the multistep format). What is the amount of total assets at the end of the period? b. c.Explanation / Answer
a.
Assets
=
Equity
Revenue
-
Expenses
=
Net income
Cash flow
Event
Cash
+
Inventory
=
Common stock
+
Retained earnings
-
=
1
$ 70,000
+
=
$ 70,000
+
-
=
$ 70,000
2
-$ 60,000
+
$ 60,000
=
+
-
=
-$ 60,000
3
$ 82,000
+
-$ 48,000
=
+
$ 34,000
$ 82,000
-
$ 48,000
=
$ 34,000
$ 82,000
Total
$ 92,000
+
$ 12,000
=
$ 70,000
+
$ 34,000
$ 82,000
-
$ 48,000
=
$ 34,000
$ 92,000
b.
Justin Swords
Income Statement
For the year ending December 31, 2014
Revenue
82000
Less: Cost of goods sols
48000
Gross profit
34000
c.
Amount of total assets = Cash + Inventory = $92,000 + $12,000 = $104,000
Assets
=
Equity
Revenue
-
Expenses
=
Net income
Cash flow
Event
Cash
+
Inventory
=
Common stock
+
Retained earnings
-
=
1
$ 70,000
+
=
$ 70,000
+
-
=
$ 70,000
2
-$ 60,000
+
$ 60,000
=
+
-
=
-$ 60,000
3
$ 82,000
+
-$ 48,000
=
+
$ 34,000
$ 82,000
-
$ 48,000
=
$ 34,000
$ 82,000
Total
$ 92,000
+
$ 12,000
=
$ 70,000
+
$ 34,000
$ 82,000
-
$ 48,000
=
$ 34,000
$ 92,000
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