Prepare an income statement (ignoring income taxes) for Kissick Co.\'s first yea
ID: 2426467 • Letter: P
Question
Prepare an income statement (ignoring income taxes) for Kissick Co.'s first year of operations and a balance sheet as of the end of the year. (Hint: You may find it helpful to prepare T-accounts for each account affected by the transactions.) (Amounts to be deducted and net loss should be indicated with minus sign.) a. Issued 196,000 shares of $5-par-value common stock for $980,000 in cash. b. Borrowed $540,000 from Oglesby National Bank and signed a 11% note due in two years. c. Incurred and paid $410,000 in salaries for the year. d. Purchased $650,000 of merchandise inventory on account during the year. e. Sold inventory costing $580,000 for a total of $900,000, all on credit. f. Paid rent of $330,000 on the sales facilities during the first 11 months of the year. g. Purchased $190,000 of store equipment, paying $54,000 in cash and agreeing to pay the difference within 90 days. h. Paid the entire $136,000 owed for store equipment, and $620,000 of the amount due to suppliers for credit purchases previously recorded. i. Incurred and paid utilities expense of $35,000 during the year. j. Collected $835,000 in cash from customers during the year for credit sales previously recorded. k. At year-end, accrued $59,400 of interest on the note due to Oglesby National Bank. l. At year-end, accrued $30,000 of past-due December rent on the sales facilities.
Explanation / Answer
Income statement and balance sheet is prepared as under:
Kissick Co.
Income Statement
For the Year Ended, December 31
Net sales ………………………………………………………………
$
900,000
Cost of goods sold ……………………………………………………
(580,000)
Gross profit ……………………………………………………………
$
320,000
Utilities expense
Salaries expense……………………
Rent expense
(35,000)
(410,000)
(360,000)
Income from operations ……………………………………………
$
(485,000)
Interest expense ………………………………………………………
(59,400)
Net income ……………………………………………………………
$
(544,400)
Kissick Co.
Balance Sheet
December 31
Assets
Cash and cash equivalents…………………………………………
$
770,000
Accounts receivable…………………………………………………
65,000
Inventory… ……………………………………………………………
70,000
Total Current Assets…………………………………………………
$
905,000
Store equipment……………………………………………
190,000
Total Assets……………………………………………………………
$
1,095,000
Liabilities
Accounts payable……………………………………………………
$
30,000
11% Note payable…………………………………………………………
540,000
Interest payable………………………………………………………
59,400
Rent payable…………………………………………………………
30,000
Total liabilities…………………………………………………………
$
659,400
Owner’s Equity
Common stock…………………………………………………………
$
980,000
Retained earnings……………………………………………………
(544,400)
Total owner’s equity…………………………………………………
$
435,600
Total liabilities and owner’s equity…………………………………
$
1,095,000
T-accounts are prepared as under:
Kissick Co.
Income Statement
For the Year Ended, December 31
Net sales ………………………………………………………………
$
900,000
Cost of goods sold ……………………………………………………
(580,000)
Gross profit ……………………………………………………………
$
320,000
Utilities expense
Salaries expense……………………
Rent expense
(35,000)
(410,000)
(360,000)
Income from operations ……………………………………………
$
(485,000)
Interest expense ………………………………………………………
(59,400)
Net income ……………………………………………………………
$
(544,400)