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 net income 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

Net Income that Apple would report in its 31st Dec'2003 in Balance sheet is $28,550.

Please see the detailed working for this as below:-

Statement Showing Profit & Loss
as on 31st Dec, 2003
Particulars				Amount($)
Revenue :-
Sale of Goods				44,000
Sale of Services				16,500
Total Revenue(A)				60,500
Cost
Insurance Cost				4,550
Cost of Goods Sold
Purchase			50,000
(-) Closing Stock			(25,000)	25,000
Depreciation				2,400
Total Cost(B)				31,950
Net Income or Profit(A-B)				28,550
Balance Sheet
as on 31st Dec, 2003
Particulars				Amount($)
Non Current Assets
Equipment			60,000
Less: Accumulated Dep			(2,400)	57,600
Current Assets
Cash			50,100
Inventory			25,000
Prepayment or Prepaid			18,850	93,950
Total Assets				151,550
Equity & Liabilities
Share Capital				90,000
Profit/Retained Earning				28,550
Current Liabilities
Deferred Revenue				33,000
Total Liabilities				151,550

Journal Entries

Particulars	Dr/Cr.	Amount	Amount
Cash	Dr.	90,000
Share Capital	Cr.		90,000
Inventory Purchased	Dr.	50000
Cash	Cr.		50000
Insurance Cost(June- Dec'03-7months)	Dr.	4550
Prepayment (29 months)	Dr.	18850
Cash	Cr.		23400
( Include Adjustment Entries effect)
Cash	Dr.	49500
Revenue from Service(Jul-Dec'03 for 6 months)	Cr.		16500
Deferred Revenue(12 Months)	Cr.		33000
( Include Adjustment Entries effect)
Fixed Assets-Equipment	Dr.	60,000
Cash	Cr.		60,000
Cash	Dr.	44,000
Revenue from Sale of Goods	Cr.		44,000
Depreciation on Fixed Assets	Dr.	2400
Accumulated Dep on Equipment	Cr.		2400