Question

Exercise 7-21 Current liabilities LO 7-1, 7-2, 7-4, 7-10 [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 $48,500 from the issue of common stock. Purchased equipment inventory of $177,500 on account. Sold equipment for $193,500 cash (not including sales tax). Sales tax of 6 percent is collected when the merchandise is sold. The merchandise had a cost of $118,500. Provided a six-month warranty on the equipment sold. Based on industry estimates, the warranty claims would amount to 3 percent of sales. Paid the sales tax to the state agency on $143,500 of the sales. On September 1, 2018, borrowed $19,500 from the local bank. The note had a 6 percent interest rate and matured on March 1, 2019. Paid $5,900 for warranty repairs during the year. Paid operating expenses of $52,500 for the year. Paid $124,500 of accounts payable. Recorded accrued interest on the note issued in transaction no. 6. Exercise 7-21 Part b Prepare the income statement, balance sheet, and statement of cash flows for 2018. This is the last question in the assignment. To submit, use Alt + S. To access other questions, proceed to the question map button.

Answer 1

		JOURNAL ENTRY
		ACCOUNT	DEBIT	CREDIT
		Cash	$48,500
		Common Stock		$48,500
		Equipment Inventory	$177,500
		Accounts payable		$177,500
		Cash	$205,110
		Sales Revenue		$193,500
		Sales tax liability		$11,610	(193500*0.06)
		Cost of goods sold	$118,500
		Equipment inventory		$118,500
		Warranty expenses	$5,805		(0.03*193500)
		Warrananty Liability		$5,805
		Sales tax liability	$        8,610		(143500*0.06)
		Cash		$        8,610
		Cash	$19,500
		Note payable		$19,500
		Warranty Liability	$5,900
		Cash		$5,900
		Operating expenses	$52,500
		Cash		$52,500
		Accounts payable	$124,500
		Cash		$124,500
		Interest expenses	$390		(19500*0.06)*(4/12)
		Interest payable		$390
		CASH ACCOUNT
		Description	Debit	Credit
		Common stock issued	$48,500
		Cash received against sales	$205,110
		Sales tax paid		$8,610
		Notes payable	$19,500
		Warranty Liability		$5,900
		Operating expenses		$52,500
		Accounts payable		$124,500
		Ending Balance	$81,600
		EQUIPMENT INVENTORYACCOUNT
		Description	Debit	Credit
		Purchase of Equipment on a/c	$177,500
		Cost of goods sold		$118,500
		Ending Balance	$59,000
		ACCOUNTS PAYABLE ACCOUNT
		Description	Debit	Credit
		Equipment Inventory		$177,500
		Cash	$124,500
		Ending Balance		$53,000
		SALES TAX LIABILITY ACCOUNT
		Description	Debit	Credit
		Cash sales		$11,610
		Cash	$        8,610
		Ending Balance		$3,000
		WARRANTY LIABILITY ACCOUNT
		Description	Debit	Credit
		Warranty expenses		$5,805
		Cash	$5,900
		Warranty expenses		$95
		INTEREST PAYABLE ACCOUNT
		Description	Debit	Credit
		Interest expenses		$390
		NOTES PAYABLE ACCOUNT
		Description	Debit	Credit
		Cash		$19,500
		COMMON STOCK ACCOUNT
		Description	Debit	Credit
		Cash		$48,500
		SALES REVENUE ACCOUNT
		Description	Debit	Credit
		Cash sales		$193,500
		COST OF GOODS SOLD ACCOUNT
		Description	Debit	Credit
		Equipment inventory	$118,500
		WARRANTY EXPENSE ACCOUNT
		Description	Debit	Credit
		Warranty Liability	$5,805
		Warranty Liability	$95
		OPERATING EXPENSES ACCOUNT
		Description	Debit	Credit
		Cash	$52,500
		INTEREST EXPENSES ACCOUNT
		Description	Debit	Credit
		Interest payable	$390
		TRIAL BALANCE
		ACCOUNT	DEBIT	CREDIT
		Cash	$81,600
		Equipment Inventory	$59,000
		Accounts Payable		$53,000
		Warranty Liability		$0
		Sales Tax Liability		$3,000
		Interest payable		$390
		Notes payable		$19,500
		Common Stock		$48,500
		Sales Revenue		$193,500
		Cost of goods sold	$118,500
		Operating expenses	$52,500
		Warranty expenses	$5,900
		Interest expenses	$390
		Total	$317,890	$317,890
		INCOME STATEMENT
		Sales Revenue	$193,500
		Cost of goods sold	$118,500
		Gross Profit	$75,000
		Operating expenses	$52,500
		Warranty expenses	$5,900
		Interest expenses	$390
		Operating Income	$16,210
		BALANCE SHEET
		ASSETS;
		Cash	$81,600
		Equipment Inventory	$59,000
		Total Assets	$140,600
		LIABILITIES:
		Accounts Payable	$53,000
		Sales Tax Liability	$3,000
		Interest payable	$390
		Notes payable	$19,500
		Total Liabilities	$75,890
		OWNERS EQUITY
		Common Stock	$48,500
		Retained Earnings	$16,210
		Total Owners equity	$64,710
		Total Liabilities and owners equity	$140,600
		STATEMENT OF CASH FLOW
		Net Income	$16,210
		Increase in inventory	($59,000)
		Increase in accounts payable	$53,000
		Sales Tax Liability	$3,000
		Interest payable	$390
		Notes payable	$19,500
		Common stock	$48,500
		Total cash Flow	$81,600