ABC Company began operations in 2009 and entered into the following transactions during the year: May...

ABC Company began operations in 2009 and entered into the following
transactions during the year:

May 1:       Sold common stock to owners for $200,000 cash.

May 10:      Purchased inventory costing $40,000 on account.

June 1:      Purchased equipment for $48,000 cash. The equipment
             was assigned a 10-year life and a $6,000 residual
             value.

August 1:    Purchased a two-year insurance policy for $24,000 cash.

October 3:   Sold one-half of the inventory that was purchased on
             May 10 to a customer for $49,000; the customer did
             not pay for the goods, but agreed to pay XYZ Company
             within ninety days.

November 9:  Paid stockholders $10,000 cash as a dividend.

December 17: Collected a $22,000 partial payment from the customer
             who purchased the inventory on October 3.

December 31: Recorded adjusting entries related to the equipment
             and the prepaid insurance.

Calculate the amount of net income, that ABC Company would report in its 2009 income statement after all the above transactions are recorded and all necessary adjusting entries are made and posted.

Calculate the amount of total assets that ABC Company would report in its December 31, 2009 balance sheet after all the above transactions are recorded and all adjusting entries are made and posted.

Calculate the amount of working capital reported by ABC company at December 31, 2009 after all the above transactions are recorded and all adjusting entries are made and posted

Solutions

Expert Solution

Net income: $21550

Total assets: $251550

Total assets = Cash + Accounts receivable + Inventory + Prepaid insurance + Equipment = $140000 + 27000 + 20000 + 19000 + 45550 = $251550

Working capital: $166000

Working capital = Current assets - Current liabilities = ($140000 + 27000 + 20000 + 19000) - $40000 = $206000 - $40000 = $166000

Working:

Date	Assets					=	Liabilities	+	Stockholders' Equity		Income Statement
	Cash	Accounts Receivable	Inventory	Prepaid Insurance	Equipment	=	Accounts Payable	+	Common Stock	Retained Earnings	Revenue	-	Expenses	=	Net Income
May-01	200000								200000
May-10			40000				40000
Jun-01	-48000				48000
Aug-01	-24000			24000
Oct-03		49000								49000	49000				49000
			-20000							-20000			20000		-20000
Nov-09	-10000									-10000
Dec-17	22000	-22000
Dec-31					-2450					-2450			2450		-2450
				-5000						-5000			5000		-5000
Bal.	140000	27000	20000	19000	45550		40000		200000	11550	49000		27450		21550

Annual depreciation = ($48000 - $6000)/10 years = $42000/10 = $4200

Depreciation expense from Jun. 1 to Dec. 31 = $4200 x 7/12 = $2450

Insurance expense = $24000 x 5/24 = $5000

ekkarill92 answered 1 year ago

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