Question

Use the information below for ABC Co. to answer the following questions (#15 – 26).

Balance Sheet                                      December 31

                                                                                                                  2005                   2004    

Assets

Cash                                                                                                         $  20,000            $  10,000

Accounts receivable                                                                                    160,000              110,000

Inventories                                                                                                   80,000                50,000

Prepaid Rent                                                                                                 15,000                10,000

Investments                                                                                                100,000                75,000

Plant assets                                                                                                 210,000              250,000

Accumulated depreciation                                                                           (65,000)              (60,000)

         Total                                                                                                $520,000            $445,000

Liabilities and Stockholders' Equity

Accounts payable                                                                                      $  50,000            $  40,000

Interest payable                                                                                             20,000                  5,000

Income tax payable                                                                                         5,000                10,000

Note payable                                                                                               130,000              140,000

Common stock                                                                                            155,000              100,000

Retained earnings                                                                                        160,000              150,000

         Total                                                                                                $520,000            $445,000

Income Statement

For the Year Ended December 31, 2005

Sales                                                                                                                                  $800,000

Cost of goods sold                                                                                                                 480,000

Gross Profit                                                                                                                             320,000              

Operating expenses (including Depreciation Expense)                                  120,000

Interest expense                                                                                           20,000

Income tax expense                                                                                      25,000

         Total                                                                                                                           165,000

Income before Gains and Losses                                                                                            155,000

Gain on sale of plant assets                                                                                                        5,000   

Net income                                                                                                                       $  160,000

Additional information:

Accounts payable pertain to the purchase of inventory.

Plant assets were sold for $40,000. The cost of the plant assets was $40,000.

All dividends are cash.

For the year 2005:

Cash received/collected from customers is:

Purchases for the year is:

Cash paid to suppliers is:

Depreciation expense is:

Answer 1

Answer is as follows :

1. Cash received/collected from customer - 750000 (refer note 1)

2. Purchases for the year is - 510000 (refer note 2)

3. Cash Paid to suppliers - 500000 (refer note 3)

4. Depreciation for the year - 10000 (refer note 4)

Note 1 - Cash received/collected from customer

Sales 800000

+ opening balance AR 110000

- Closing Balance AR (160000)

= Collection 750000

Note 2 - Purchases for the year

Cost of goods sold 480000

- Opening Balance (50000)

+ Closing balance 80000

= Payment 510000

Note 3 - Cash Paid to suppliers

Accounts Payable

opening Balance 40000

+ Purchases 510000

- Closing balance (50000)

= Payment done 500000

Note 4 - Depreciation for the year

Selling price of Machine 40000

- Profit on sale (5000)

= Net Cost of Machine 35000

So accumulated Depreciation on machine sold was 5000.

Depreciation for the Current year will be as follows :

Closing accumulated Depreciation 65000

+ Accumulated Depreciation on machine sold 5000

-opeing accumulated depreciation (60000)

= Deprecaition for the year 10000