Question

Acme Company Balance Sheet As of January 5, 2019 (amounts in thousands)

Cash 9,100                                              Accounts Payable 1,900

Accounts Receivable 4,400                        Debt 2,400

Inventory 4,800                                         Other Liabilities 600

Property Plant & Equipment 15,600            Total Liabilities 4,900

Other Assets 2,600                                  Paid-In Capital 6,900

                                                               Retained Earnings 24,700

                                                              Total Equity 31,600

Total Assets 36,500                                 Total Liabilities & Equity 36,500

Update the balance sheet above to reflect the transactions below, which occur on January 6, 2019

1. Sell product for $25,000 with historical cost of $20,000

2. Sell product for $30,000 with historical cost of $24,000

3. Sell product for $40,000 with historical cost of $32,000

What is the final amount in Retained Earnings?

Please specify your answer in the same units as the balance sheet.

Answer 1

1. Sell product at $ 25,000 with historical cost $ 20,000:

Asset side : Cash or receivables increases by $ 25,000 And inventory decreases by historical cost $ 20,000.

Liability side: The profit on sale is taken in income statement which is reflected in balance sheet as increase in retained earning by $ 5,000

2. Sell product at $ 30,000 with historical cost $ 24,000:

Asset side : Cash or receivables increases by $ 30,000 And inventory decreases by historical cost $ 24,000.

Liability side: The profit on sale is taken in income statement which is reflected in balance sheet as increase in retained earning by $ 6,000

3. Sell product at $ 40,000 with historical cost $ 32,000:

Asset side : Cash or receivables increases by $ 40,000 And inventory decreases by historical cost $ 32,000.

Liability side: The profit on sale is taken in income statement which is reflected in balance sheet as increase in retained earning by $ 8,000

Statement showing Changes in the retained earnings:

Opening balance on Jan 6 2019	$ 24,700,000
Add: profit on sale of product	$ 5,000
Add: profit on sale of product	$ 6,000
Add: profit on sale of product	$ 8,000
Closing balance on Jan 6 2019	$ 24,719,000

Statement showing Changes in the Cash account:

Opening balance on Jan 6 2019	$ 9,100,000
Add: sale of product	$ 25,000
Add: sale of product	$ 30,000
Add: sale of product	$ 40,000
Closing balance on Jan 6 2019	$ 9,195,000

Note : all the sales are assumed to be on the cash basis and hence there are changes in cash account this can alternatively taken as credit sale and in the case the accounts receivable increases on each sale by the above mentioned values.

Statement showing Changes in the Inventory account:

Opening balance on Jan 6 2019	$ 4,800,000
Less: cost of sale of product	$ 20,000
Less: cost of sale of product	$ 24,000
Less: cost of sale of product	$ 32,000
Closing balance on Jan 6 2019	$ 4,724,000

The updated Balance Sheet on Jan 6 2019

Assets	Amount ($) in thousands	Equities and Liabilities	Amount ($) in thousands
Cash	9,195	Accounts Payable	1,900
Accounts Receivable	4,400	Debt	2,400
Inventory	4,724	Other Liabilities	600
Property plant and equipment	15,600	Total Liabilities	4,900
Other assets	2,600	Paid in capital	6,900
		Retained Earnings	24,719
		Total Equities	32,619
Total Assets	36,519	Total Equities and Liabilities	36,519