Question

Required information [The following information applies to the questions displayed below.] The following transactions apply to Ozark Sales for 2018: The business was started when the company received $49,000 from the issue of common stock. Purchased equipment inventory of $178,000 on account. Sold equipment for $195,500 cash (not including sales tax). Sales tax of 7 percent is collected when the merchandise is sold. The merchandise had a cost of $120,500. Provided a six-month warranty on the equipment sold. Based on industry estimates, the warranty claims would amount to 4 percent of sales. Paid the sales tax to the state agency on $145,500 of the sales. On September 1, 2018, borrowed $19,500 from the local bank. The note had a 7 percent interest rate and matured on March 1, 2019. Paid $5,400 for warranty repairs during the year. Paid operating expenses of $52,000 for the year. Paid $126,000 of accounts payable. Recorded accrued interest on the note issued in transaction no. 6. Prepare the income statement, balance sheet, and statement of cash flows for 2018.

Hello, It's the direct method. Thank you

Answer 1

	Balancesheet of Ozark as on December 31s, 2018 :
	Particulars	Note No.	Amount (in $)	Reference
	Equity and Liabilities :
	a. Equity
	- Shareholder's funds		49,000
	- Profit & loss A/c		-24,875	Refer " Income statement "
	b. Liabilities
	- Accounts payable	6	1,72,500
	- Borrowings from Local Bank		19,500
	- Accrued Interest	5	455
	Total		2,16,580
	Assets
	a. Cash A/c		2,16,580	Refer " Cashflow Statement"
	Total		2,16,580
	Income Statement for 2018 :
	Particulars	Note No.	Amount (in $)
	Income :
	a. Revenue from operations:
	- Sale of Inventory	1	1,35,980
	b.Other Income
	- Profit on of Sale of Equipment	2	17,500
	- Reversal of excess warranty provision	4	39
	Total		1,53,519
	Expense :
	- Purchase of Inventory		1,20,500
	- Operating expense		52,000
	- Provision for Warranty	3	5,439
	- Interest accrued	5	455
	Total		1,78,394
	Profit /(loss) for the year 2018		-24,875
	Notes :	Amount (in $)
1.	Sale of Inventory/ Merchandise :
	Cost of Merchandise	1,20,500
	(Assumed to be purchased on account)
	Given the gross amount of sales	1,45,500
	- Sales tax @7%	9520
	Net sale of inventory	1,35,980
2.	Profit on Sale of Equipment
	- Cost of equipment	1,78,000
	- Sale of equipment	1,95,500
	(Profit)/loss on Sale of Equipment	-17,500
3.	Provision for Warranty
	Based on industry estimates, warranty claims would amount to 4 percent of sales
	Sale amount	1,35,980
	Provision for Warranty	5,439
4.	Actual warranty expenses incurred	5,400
	Excess provision made for 2018	39
	Reversal of excess provision made	39
5.	Interest accrued
	Borrowings from Bank on September 1, 2018	19,500
	Interest @7% for 2018 (i.e 4 months from the date note obtained)	455
	Cashflow statement for 2018:
	Particulars	Amount (in $ )
	Cashflow from operations :
	Receipts :
	a. Sale of inventory	1,35,980
	b. Sales tax collected	9,520
	Payments:
	a. Operating expenses paid	-52,000
	b.Warranty expenses paid	-5,400
	c. Sales tax paid to the state agency	-9,520
	d. Payment to trade payables ( assumed the payment is related to operating activities)	-1,26,000
	Net cashflow from operating activities	-47,420
	Cashflow from investing activities:
	a. Sale of Equipment	1,95,500
	Net cashflow from investing activities	1,95,500
	Cashflow from financing activities:
	a. Cash received from issue of common stock	49,000
	b.Borrowings from Bank	19,500
	Net cashflow from financing activities	68,500
	Cash balance at the opening of the year	-
	Net cashflows during the year	2,16,580
	Cash balance at the end of the year	2,16,580
6.	Accounts payable at the end of the year 2018:
	Particulars	Amount (in $)
	- Purchase of equipment on account	1,78,000
	- Purchase of inventory on account	1,20,500
	- Amount paid during the year	-1,26,000
	Closing balance of Account payables at the end of the year 2018	1,72,500