Question

Apple began operations in May, 2003 by selling common stock to owners in exchange for $90,000 cash. During 2003, Apple entered into the following transactions:

1. On May 23, Apple purchased inventory for $50,000 cash.

2. On June 1, Apple purchased a three-year insurance policy for $23,400 cash.

3. On July 1, Apple received $49,500 cash from a customer for services to be performed over the next 18 months.

4. On August 1, Apple purchased equipment for $60,000 cash. The equipment was assigned a 10-year life and a $2,400 residual value.

5. On August 18, Apple sold one-half of the inventory that was purchased on May 23 to a customer for $44,000 cash.

Calculate the amount of total assets that Apple would report in its December 31, 2003 balance sheet after all the above transactions are recorded and all necessary adjusting entries are made and posted.

Answer 1

The folloiwing table shows the calculation of the total amount of assets that Apple would report in its December 31, 2003.

1. Cash received on sale of common stock	cash is received,i.e asset balance increases	$90,000
2.purchase of inventory	inventory is received for cash i.e asset is exchanged for asset i.e no difference in asset balance	nil
3.purchase of 3 year insurance policy for cash	the 7 month portion of 3 years (or 36 months) policy from june 1 to december 31 is an expense and remaining term of the policy wiill be a current asset =>$23,400 / 36 months * 7 months =>$4,550. in other terms it can be said that the value of assets will decrease by $4,550	($4,550)
3.Receipt of cash	cash receipt will increase the asset balance	$49,500
4.purchase of equipment for cash	the value of assets will be reduced by depreciation on machine for 5 months from august till december, => ($60,000 - $2400) / 10 Years * 5 months /12 =>$2,400	($2,400)
5.sold one half of inventory for cash	assets will increase by (cash received - cost of inventory) => (44,000 - (50,000)*1/2) =>(44,000 - 25,000)=>$19,000	$19,000
	Total amount of assets to be reported	$151,550