X Company is a merchandiser and prepares monthly financial statements. The follo
ID: 2599172 • Letter: X
Question
X Company is a merchandiser and prepares monthly financial statements. The following is its balance sheet at the beginning of January:
The following summary transactions occurred during January:
Sold stock to investors for $45,000.
Borrowed $26,000 from a bank.
Bought merchandise from suppliers, paying $3,280 and promising to pay $5,161 next month.
Bought equipment from a manufacturer, paying $31,800 and promising to pay $4,100 in three months.
Paid $3,315 to merchandise suppliers that it had promised to pay.
Sold merchandise, receiving $17,445 cash and promises to pay of $4,935; the merchandise that was sold previously cost $11,190.
Paid a total of $543 for rent and insurance in advance.
Received $3,570 from customers who had promised to pay.
Paid $5,670 for wages, utilties, and other miscellaneous expenses.
Note: Ignore adjusting entries.
4. What was the cash balance on January 31? $100,076
5. What were total equities on January 31?
6. What was net income in January?
Explanation / Answer
5.
It is mentioned in the Balance Sheet that the Company Equity contains Total Liabilities but that is not true, Equity means Total Assets – Total Liabilities.
OR
Equity = Shareholder’s fund
Total Equity / Shareholders Fund = Opening Paid in capital + Opening Retained Earnings + Stocks sold to investors
= 227,289 + 70,918 + 45,000
Total Shareholders Fund = $343,207
6.
There is no Sales or Purchase information, so we will calculate profit by deducting Total Amount Paid to Customers for this year from Total amount received from Customers for this year,
Assuming that the amount paid is for purchases and Amount received is for Sales.
Net Income = Total amount received from Customers for this year – Total Amount Paid to Customers for this year - wages, utilities, and other miscellaneous expenses
= (17,445 + 4,935) - (3,280 + 5,161) - 5,670
= 22,380(Sales) – 8,441(Purchases) - 5,670(Expenses)
Net Income = $8,269
I have not considered the amount of previous month which the company has received ( Like Received $3,570 from customers who had promised to pay) or The amount which the expenses incurred last month and promised to pay this month (like Paid $3,315 to merchandise suppliers that it had promised to pay)
And the expenses which are paid in advance as this and above don’t belong to Current month for which we are calculating the Net income
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