Question

GL1201 - Based on Exercise 12-11 LO P2, P3, A1

Use the following financial statements and additional information.

SANCHEZ INC. Comparative Balance Sheets June 30, 2019 and 2018
	2019				2018
Assets
Cash	$	101,300			$	48,900
Accounts receivable, net		68,000				53,000
Inventory		69,000				96,000
Prepaid expenses		5,700				7,100
Total current assets		244,000				205,000
Equipment		179,000				166,000
Accum. depreciation—Equipment		(45,000	)			(15,000	)
Total assets	$	378,000			$	356,000
Liabilities and Equity
Accounts payable	$	33,000			$	40,000
Wages payable		7,000				17,000
Income taxes payable		3,600				4,000
Total current liabilities		43,600				61,000
Notes payable (long term)		43,000				85,000
Total liabilities		86,600				146,000
Equity
Common stock, $5 par value		250,000				180,000
Retained earnings		41,400				30,000
Total liabilities and equity	$	378,000			$	356,000

SANCHEZ INC. Income Statement For Year Ended June 30, 2019
Sales				$	940,000
Cost of goods sold					575,000
Gross profit					365,000
Operating expenses
Depreciation expense	$	77,000
Other expenses		93,000
Total operating expenses					170,000
					195,000
Other gains (losses)
Gain on sale of equipment					5,200
Income before taxes					200,200
Income taxes expense					61,280
Net income				$	138,920

Additional Information

1. A $43,000 note payable is retired at its $43,000 carrying (book) value in exchange for cash.
2. The only changes affecting retained earnings are net income and cash dividends paid.
3. New equipment is acquired for $75,000 cash.
4. Received cash for the sale of equipment that had cost $62,000, yielding a $5,200 gain.
5. Prepaid Expenses and Wages Payable relate to Other Expenses on the income statement.
6. All purchases and sales of inventory are on credit.

Answer 1

No.	Date	General Journal	Debit	Credit
			$	$
1.	June 30, 2019	Cash	925,000
		Accounts Receivable	15,000
		Sales		940,000
2.	June 30, 2019	Cost of Goods Sold	575,000
		Accounts Payable	7,000
		Inventory		27,000
		Cash		555,000
3.	June 30, 2019	Depreciation Expense	77,000
		Accumulated Depreciation: Equipment		77,000
4.	June 30, 2019	Other Expenses	93,000
		Wages Payable	10,000
		Prepaid Expenses		1,400
		Cash		101,600
5.	June 30, 2019	Cash	20,200
		Accumulated Depreciation: Equipment	47,000
		Equipment		62,000
		Gain on Sale of Equipment		5,200
6.	June 30, 2019	Income Tax Expense	61,280
		Income Tax Payable	400
		Cash		61,680
7.	June 30, 2019	Notes Payable	43,000
		Cash		43,000
8.	June 30, 2019	Cash	1,000
		Notes Payable		1,000
9.	June 30, 2019	Equipment	75,000
		Cash		75,000
10.	June 30, 2019	Cash	70,000
		Common Stock		70,000
11.	June 30, 2019	Dividends	127,520
		Cash		127,520
12.	June 30, 2019	Sales	940,000
		Gain on Sale of Equipment	5,200
		Income Summary		945,200
13.	June 30, 2019	Income Summary	806,280
		Cost of Goods Sold		575,000
		Depreciation Expense		77,000
		Other Expenses		93,000
		Income Tax Expense		61,280
13.	June 30, 2019	Income Summary	138,920
		Retained Earnings		138,920
14.	June 30, 2019	Retained Earnings	127,520
		Dividends		127,520

Sanchez Inc. Statement of Cash Flows For the year ended June 30, 2019
Cash Flows from Operating Activities
Net Income		$ 138,920
Adjustments to reconcile net income to net cash provided by operations
Depreciation expense	$ 77,000
Gain on sale of equipment	(5,200)
Increase in accounts receivable	(15,000)
Decrease in inventory	27,000
Decrease in prepaid expenses	1,400
Decrease in accounts payable	(7,000)
Decrease in wages payable	(10,000)
Decrease in income taxes payable	(400)	67,800
Net Cash Provided by Operations		206,720
Cash Flows from Investing Activities
Cash from sale of equipment	20,200
Cash paid to acquire equipment	(75,000)
Net cash used by Investing Activities		(54,800)
Cash Flows from Financing Activities
Cash from issuance of common stock	70,000
Cash from issuance of notes payable	1,000
Cash paid to retire notes payable	(43,000)
Cash dividends paid	(127,520)
Net cash used by Financing Activities		(99,520)
Net increase ( decrease ) in Cash		52,400
Cash, June 30, 2018		48,900
Cash, June 30, 2019		101,300