Question

Fred Smithers, a recent college graduate decided to open his own portable juice bar, Smither's Smoothies, to wheel around Newport beach. You, a trusted friend of Fred, are a business major that has also recently graduated and agreed to handle the books for a while to get some practical experience and have a favor that you can ask of Fred in the future. Given the following five transactions... May 2: Fred invests $12,000 of his own money to start the new company. This money was obtained from a part-time job working at a legal firm while he was in school. May 3: Fred spent $5,100 cash to purchase a refrigerated trailer that he can pull behind his car and set up at the beach. Under your advice, Fred agrees to place the new asset under an account called "Equipment." May 6: Fred bought $640 of supplies on account from the Flav-O-Rite confectioners company. Because they will last longer than a single accounting period Fred agrees to record them as, "Supplies" as per your suggestion. May 13: Fred sat on the beach for six hours without a single sale and was feeling very down. Right before he left, however, a plumber escorting his family reunion along the beach stopped by his stand and bought $800 worth of smoothies for the entire family. Under your advice, Fred agrees to call this cash revenue, "Sales." Question: What would be the balance in the Cash account at the end of the period following the posting of all the transactions? A. $7,350 B. None of the other answers C. $18,250 D. $7,700

Answer 1

Based on the information available inthe question, we can calculate the balance in the cash account at the end of the accounting period as follows:-

Date	Amount	Effect on Cash account	Rationale
May 2	12,000	Increase	This would result in an increase to the cash account as it is capital contribution to the business.
May 3	(5,100)	Decrease	This would result in a decrease to the cash account because an asset has been purchased by paying cash
May 6	-	No effect	The purchase of supplies on credit would not affect the cash account as it is a credit transaction and no cash is involved
May 13	800	Increase	Sales Revenue increases the amount of cash available.
Cash balance	7,700

Based on the calculation above, the correct answer is Option D - $7,700.

Option A and Option C are incorrect based on the above calculations.

Optoin B is incorrect as we have an answer at Option D.

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