Question

Below are the transactions and adjustments that occurred during the first year of operations at Kissick Co

Issued 192,000 shares of $5-par-value common stock for $960,000 in cash.

Borrowed $530,000 from Oglesby National Bank and signed a 10% note due in three years.

Incurred and paid $390,000 in salaries for the year.

Purchased $710,000 of merchandise inventory on account during the year.

Sold inventory costing $580,000 for a total of $920,000, all on credit.

Paid rent of $110,000 on the sales facilities during the first 11 months of the year.

Purchased $190,000 of store equipment, paying $51,000 in cash and agreeing to pay the difference within 90 days.

Paid the entire $139,000 owed for store equipment and $590,000 of the amount due to suppliers for credit purchases previously recorded.

Incurred and paid utilities expense of $37,000 during the year.

Collected $855,000 in cash from customers during the year for credit sales previously recorded.

At year-end, accrued $53,000 of interest on the note due to Oglesby National Bank.

At year-end, accrued $10,000 of past-due December rent on the sales facilities.

Required:

a. Prepare an income statement (ignoring income taxes) for Kissick Co.'s first year of operations and a balance sheet as of the end of the year. (Hint: You may find it helpful to prepare T-accounts for each account affected by the transactions.)

(Amounts to be deducted and net loss should be indicated with minus sign.)

Answer 1

Transaction	General Journal	Debit	Credit
a)	Cash	$960,000.00
	Common Stock		$960,000.00
b)	Cash	$530,000.00
	Notes Payable		$530,000.00
c)	Salaries expense	$390,000.00
	Cash		$390,000.00
d)	Merchandise inventory	$710,000.00
	Accounts payable		$710,000.00
e1)	Accounts receivable	$920,000.00
	Sales		$920,000.00
e2)	Cost of goods sold	$580,000.00
	Merchandise inventory		$580,000.00
f)	Rent expense	$110,000.00
	Cash		$110,000.00
g)	Equipment	$190,000.00
	Accounts Payable		$139,000.00
	Cash		$51,000.00
h)	Accounts payable	$729,000.00
	Cash		$729,000.00
i)	Utilities expense	$37,000.00
	Cash		$37,000.00
j)	Cash	$855,000.00
	Accounts Receivables		$855,000.00
k)	Interest expense	$53,000.00
	Interest payable		$53,000.00
l	Rent expense	10000
	Rent Payable		10000
	Kissick Co.'s
	Income Statement
	For the Year Ended, December 31, 2017
	Sales	$920,000.00
	Cost of goods sold	-$580,000.00
	Gross profit	$340,000.00
	Selling, general, and administrative expenses (390,000+110,000+37000+10000)	-$547,000.00
	Loss from operation	-$207,000.00
	Interest expense	-$53,000.00
	Net income	-$260,000.00
	Net income per share of common stock outstanding = -$260,000/192,000	-$1.35
	Kissick Co.'s
	Balance Sheet
	December 31, 2017
	Assets
	Current Assets
	Cash and cash equivalents	$1,028,000.00
	Accounts receivable ($920,000 - 855,000)	$65,000.00
	Inventory ($710,000 - $580,000)	$130,000.00
	Total Current Assets	$1,223,000.00
	Equipment	$190,000.00
	Total Assets	$1,413,000.00
	Liabilities
	Current Liabilities
	Accounts payable ($710,000+139,000 - 729,000)	$120,000.00
	Interest payable	$53,000.00
	Rent payable	$10,000.00
	Total Current Liabilities	$183,000.00
	Notes payable	$530,000.00
	Total Liabilities	$713,000.00
	Owner’s Equity
	Common stock	$960,000.00
	Retained earnings	-$260,000.00
	Total owner’s equity	$700,000.00
	Total liabilities and owner’s equity	$1,413,000.00