Question

Sage Inc. experienced the following transactions for Year 1, its first year of operations: Issued common stock for $110,000 cash. Purchased $200,000 of merchandise on account. Sold merchandise that cost $160,000 for $318,000 on account. Collected $278,000 cash from accounts receivable. Paid $180,000 on accounts payable. Paid $60,000 of salaries expense for the year. Paid other operating expenses of $76,000. Sage adjusted the accounts using the following information from an accounts receivable aging schedule: Number of Days Past Due Amount Percent Likely to Be Uncollectible Allowance Balance Current $ 24,000 0.01 0–30 10,000 0.05 31–60 2,000 0.10 61–90 2,000 0.20 Over 90 days 2,000 0.50 Required

a. Organize the transaction data in accounts under an accounting equation. (Enter any decreases to account balances with a minus sign. Not all cells in the "Accounts Titles for Retained Earnings" column may require an input - leave cells blank if there is no corresponding Retained Earnings input needed.)

b. Prepare the income statement, statement of changes in stockholders’ equity, balance sheet, and statement of cash flows for Sage Inc. for Year 1.

c. What is the net realizable value of the accounts receivable at December 31, Year 1?

Answer 1

a)

W.N

Number of days past due	Amount	% likely to be uncollectible	Allowance Balance
	[A]	[B]	[C = A × B]
Current	$24,000	0.01	$240.00
0-30	$10,000	0.05	$100.00
31-60	$2,000	0.1	$20.00
61-90	$2,000	0.2	$20.00
Over 90 days	$2,000	0.5	$20.00
	$40,000		$400.00

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Prepare Income Statement:

Sage Inc.
Income Statement
Revenue:
Sales		$318,000
COGS		($160,000)
Gross margin		$158,000
Less: Operating Expense
Salaries Expense	($60,000)
Other Operating Expense	($76,000)
Uncollectible account expn.	($400)	($136,400)
Net Income		$21,600

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Prepare the Statement as follows:

Sage Inc.
Statement of changes in stockholders' equity
For the year ended Y1
Beg. Common stock	$0
Add: Stock issued	$110,000
Ending Common stock		$110,000
Beginning retained earnings	$0
Add: Net Income	$21,600
Ending retained earnings		$21,600
Total Stockholders' equity		$131,600

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Sage Inc.
Balance Sheet
Assets:
Cash		$72,000
Accounts Receivable	$40,000
Less: Allowance	($400)	$39,600
Merchandise Inventory		$40,000
Total Assets		$151,600
Liabilities:
Accounts payable	$20,000
Total Liabilities		$20,000
Stockholders' equity:
Common stock	$110,000
Retained Earnings	$21,600
Total Stockholders' equity		$131,600
Total Liabilities and Stockholders' equity		$151,600

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Prepare Statement of Cash flow:

Cash flow Statement
Cash flow from operating activities:
Cash collected from customer	$278,000
Cash payment to supplier	($180,000)
Cash payment to employees	($60,000)
Cash payment to other operating expenses	($76,000)
Net cash flow from operating activities [A]		($38,000)
Cash flow from Investing Activities [B]		$0
Cash flow from Financing Activities
Common stock Issued	$110,000
Net Cash flow from Financing Activities [C]		$110,000
Net Change in cash [A+B+C]		$72,000
Beg. Cash balance		$0
Ending cash balance		$72,000

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Compute Net realizable Value = $40000 - $400 = $39600

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