Question

Step 1

In 2012, XYZ Inc., a medical equipment distributor, sold 10,000 units of its hospital beds at an average price of $500 per unit. The company reported estimated returns and allowances of $200,000. The company purchased 11,000 units of its product from its manufacturer in 2012 at an average cost of $350 per unit. XYZ began 2012 with 1,000 units of its product in inventory (carried at an average cost of $300 per unit). Operating expenses (excluding depreciation) in 2012 were $400,000, and the depreciation expense was $100,000. XYZ had $2,000,000 in debt outstanding throughout all of 2012, which carried an average interest rate of 10%. The company’s tax rate is 40%. Its fiscal year runs from January 1 through December 31. Given this information, prepare the following documents:

XYZ’s 2012 income statement

XYZ’s 2012 ending inventory balance (both in unit and in dollar terms)

Step 2

Transfer the net income from the income statement in Task 1 to retained earnings, and create a balance sheet in the given format with the following additional information for the year ending December 31, 2012. Particulars Amount ($) Accounts payable 39,000 Accrued expenses 18,000 Accumulated depreciation (65,000) Additional paid-in capital 164,000 Allowance for doubtful accounts (5,000) Cash 25,000 Common stock ($0.20 par) 45,000 Current portion of long-term debt 6,000 Gross accounts receivable 45,000 Gross fixed assets 500,000 Inventories 50,000 Prepaid expenses 384,000 Long-term debt 200,000 Net accounts receivable 40,000 Net fixed assets 435,000 Retained earnings 60,000 Short-term bank loan (notes payable) 18,000

Answer 1

Ans- XYZ Inc.

Income Statement

For the Year Ended December 31,2012

Particulars	Amount ($)	Amount ($)
Sales (10,000units *$500)		5,000,000
Less:Sales Return and Allowance		200,000
Net Sales		4,800,000
Less: Cost of goods sold		3,450,000
Gross Profit		1,350,000
Less: Operating Expenses		400,000
Depreciation Expense		100,000
Interest Expense ($200,000*10/100)		20,000
Income Before Tax		830,000
Income tax expense (40%)		332,000
Net Income		498,000

Note:-

1-XYZ's Ending Inventory balance in units =Opening inventory+Purchase-Sale inventory

=1,000+11,000-10,000

=2,000 units

2-Ending inventory balance in dollars= 2,000units *350 purchase price

=$700,000

3-Cost of goods sold= Beginning Inventory+Purchases-Ending Inventory

=$300,000(1,000*300)+$3,850,000(11,000*350)-700,000

=$3,450,000

XYZ INC.

Balance Sheet

December 31,2012

Assets	Amount ($)	Liabilities and Stockholders' Equity	Amount ($
Cash (25,000+6,000)	31,000	Accounts Payable	39,000
Accounts Receivable, net	40,000	Accured Expense	18,000
		Income Tax Payable	332,000
Net fixed assets	435,000	Outstanding Debt $200,000-$14,000 ($20,000-$6,000)	216,000
Prepaid expenses	384,000	Short-term bank loan	18,000
Closing inventory	700,000	Long-term loan	200,000
		Common Stock	45,000
		Additional Paid-in Capital	164,000
		Retained Earnings (60,000+498,000)	558,000
Total Assets	1,590,000	Total Liabilities and Stockholders' Equity	1,590,000