Question

On January 1, Kirk Corporation had total assets of $861,000. During the month, the following activities occurred: Kirk Corporation acquired equipment costing $7,100, promising to pay cash for it in 60 days. Kirk Corporation purchased $3,610 of supplies for cash. Kirk Corporation sold land, which it had acquired 2 years ago. The land had cost $16,100 and it was sold for $16,100 cash. Kirk Corporation signed an agreement to rent additional storage space next month at a charge of $1,110 per month. What is the amount of total assets of Kirk Corporation at the end of the month?

a)$868,100

b)$871,710

c)$832,000

d)$815,900

Answer 1

The correct option is A i.e $868,100.

Working:

1: Equipment acquired for $7,100 will increase assets but it does not involve any outflow of cash thus net effect is total asset increase by $7,100.

2: Purchase of supplies for cash, decreases cash and increases supplies. therefore net effect is nil on assets.

3: Sale of land for cash increases cash and decreases land, thus net effect is nil on assets.

4: Signed an agreement to rent additional storage space next month, as no monetary transaction took place in this month so net effect is nil on assets.

Thus, total assets at the end of month = $861,000 + $7,100 = $868,100.