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The transactions relating to the formation of Blue Co. Stores Inc., and its first month of...

The transactions relating to the formation of Blue Co. Stores Inc., and its first month of operations follow.

  1. The firm was organized and the stockholders invested cash of $8,700.
  2. The firm borrowed $5,500 from the bank; a short-term note was signed.
  3. Display cases and other store equipment costing $1,750 were purchased for cash. The original list price of the equipment was $1,940, but a discount was received because the seller was having a sale.
  4. A store location was rented, and $1,400 was paid for the first month's rent.
  5. Inventory of $16,000 was purchased; $8,200 cash was paid to the suppliers, and the balance will be paid within 45 days.
  6. During the first week of operations, merchandise that had cost $3,900 was sold for $5,800 cash.
  7. A newspaper ad costing $120 was arranged for; it ran during the second week of the store's operations. The ad will be paid for in the next month.
  8. Additional inventory costing $4,250 was purchased; cash of $1,350 was paid, and the balance is due in 30 days.
  9. In the last three weeks of the first month, sales totaled $13,750, of which $9,100 was sold on account. The cost of the goods sold totaled $9,200.
  10. Employee wages for the month totaled $2,000; these will be paid during the first week of the next month.
  11. The firm collected a total of $3,450 from the sales on account recorded in transaction i.
  12. The firm paid a total of $4,900 of the amount owed to suppliers from transaction e.


Required:

  1. Record each transaction in the appropriate columns. Indicate the financial statement effect.
  2. Calculate the total assets, liabilities, and stockholders' equity at the end of the month and calculate the amount of net income for the month.
  3. After completing parts a through l, prepare an income statement for Blue Co. Stores Inc. for the month presented and a balance sheet at the end of the month.

Solutions

Expert Solution

Assets = Liabilities + Stockholders' Equity
Accounts Merchandise Notes Accounts Paid-in Retained
Cash + Receivable + Inventory + Equipment = Payable + Payable + Capital + Earnings Revenue - Expenses
a. 8700 + + + = + + 8700 + -
b. 5500 + + + = 5500 + + + -
c. -1750 + + + 1940 = + + + 190 190 -
d. -1400 + + + = + + + -1400 - 1400
e. -8200 + + 16000 + = + 7800 + + -
f. 5800 + + -3900 + = + + + 1900 5800 - 3900
g. + + + = + 120 + + -120 - 120
h. -1350 + + 4250 + = + 2900 + + -
i. 4650 + 9100 + -9200 + = + + + 4550 13750 - 9200
j. + + + = + 2000 + + -2000 - 2000
k. 3450 + -3450 + + = + + + -
l. -4900 + + + = + -4900 + + -
Bal. 10500 + 5650 + 7150 + 1940 = 5500 + 7920 + 8700 + 3120 19740 - 16620

b.

Assets 25240
Liabilities 13420
Stockholders' Equity 11820
Net Income 3120

c.

BLUE CO. STORES, INC.
Income Statement
Sales revenue 19550
Cost of goods sold - 13100
Gross margin 6450
Rent expense -1400
Wages expense -2000
Advertising expense -120
other income 190
Net income $ 3120

d.

BLUE CO. STORES, INC.
Balance Sheet
Assets:
Cash 10500
Accounts receivable 5650
Merchandise inventory 7150
Total current assets 23300
Equipment 1940
Total assets 25240
Liabilities:
Notes payable 5500
Accounts payable 7920
Total liabilities 13420
Stockholders' Equity:
Common stock 8700
Retained earnings 3120
Total stockholders' equity 11820
Total liabilities and stockholders' equity 25240

ekkarill92 answered 2 years ago
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