Question

Problem 3-1

Lisa’s Dress Shop (LDS) experienced the following events in 2017.  Indicate how each of the events affects the company’s financial statements, using the financial statement model provided.  LDS’ beginning balances for 2017 are Cash $100,000,  Common Stock $75,000 and Retained Earnings $25,000.

1. LDS purchased merchandise with a list price of $65,000 on account, terms 2/10, n/30.

2. The goods were purchased FOB shipping point with freight cost paid of $1,500 in cash.

3. (a) Sold merchandise for $80,000 to a customer on account.  (b) The merchandise sold had a net cost to LDS of $48,900.

4. LDS paid in cash freight cost of $1,100 for goods delivered to customers FOB destination.

5. Paid the balance due on accounts payable of $63,700 within the discount period.

6. Collected $55,000 cash from accounts receivable customers.

7. Paid $19,600 in cash for other operating expenses.

            

	Assets					=	Liabilities	+	Stockholder’s Equity
	Cash	+	Accounts Receivable	+	Inventory	=	Accounts Payable	+	Common Stock	Retained Earnings	Account Title for Retained Earnings
Beginning Balances, 1/1/17	100,000								75,000	25,000
1.
2.
3(a)
3(b)
4.
5.
6.
7.
Ending Balances, 12/31/17

After recording the above transactions, prepare an income statement and balance sheet for calendar year 2017.

Answer 1

Accounting Equation

					=		Liabilities	+	Stockholder’s Equity
	Assets
	Cash	+	Accounts	+	Inventory	=	Accounts Payable	+	Common Stock	Retained Earnings	Account Title for Retained Earnings
			Receivable
Beginning	100,000								75,000	25,000
Balances,
01-01-2017
1					65,000		65,000
2	-1,500									-1,500	Freight Costs
3(a)			80,000							80,000	Sales
3(b)				-	-49,800					-49,800	Cost of goods sold
4	-1,100									-1,100	Freight Costs
5	-63,700						-65,000			1,300	discount
6	55,000		-55,000
7	-19,600									-19,600	Operating expenses
Ending Balances, 12/31/17	69,100		25,000		15,200		0		75,000	34,300

Income Statement and Balance Sheet:

Lisa's Dress Shop
Income Statement
For the Year Ended Dec 31, 2017
Particulars	Amount ($)	Amount ($)
Sales		80,000
Less: Cost of goods sold		$49,800
Gross Profit		$30,200
Sales discount	1,300
Freight cost	-2,600
Operating Expense	-19,600
Net income		9,300

Lisa's Dress Shop
Retained earning
For the Year Ended Dec 31, 2017
Particulars	Amount ($)	Amount ($)
R/E beginning		25,000
Add:
Net income	9,300
Less:
Dividend
R/E Ending		34,300

Lisa's Dress Shop
Balance Sheet
As at Dec 31,2017
Particulars	Amount ($)	Amount ($)
ASSETS
Current Assets:
Cash	69,100
Account receivable	25,000
Inventory	15,200
Total Current Assets		109,300
LIABILITIES AND STOCKHOLDERS EQUITY
Liabilities :
Current Liabilities
Accounts Payable	0
Total Current Liabilities		0
Total Stockholders' Equity
Common Stock	75,000
Retained earnings	34,300
Total Stockholders' Equity		109,300
Total Liabilities and stockholders’ equity		109,300