The transactions relating to the formation of Blue Co Stores

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

The firm was organized and the stockholders invested cash of $16,000.

The firm borrowed $10,000 from the bank; a short-term note was signed.

Display cases and other store equipment costing $3,500 were purchased for cash. The original list price of the equipment was $3,800, but a discount was received because the seller was having a sale.

A store location was rented, and $2,800 was paid for the first month’s rent.

Inventory of $30,000 was purchased; $18,000 cash was paid to the suppliers, and the balance will be paid within 30 days.

During the first week of operations, merchandise that had cost $8,000 was sold for $13,000 cash.

A newspaper ad costing $200 was arranged for; it ran during the second week of the store’s operations. The ad will be paid for in the next month.

Additional inventory costing $8,400 was purchased; cash of $2,400 was paid, and the balance is due in 30 days.

In the last three weeks of the first month, sales totaled $27,000, of which $19,200 was sold on account. The cost of the goods sold totaled $18,000.

Employee wages for the month totaled $3,700; these will be paid during the first week of the next month.

The firm collected a total of $6,320 from the sales on account recorded in transaction i.

The firm paid a total of $9,440 of the amount owed to suppliers from transaction e.

(Parts a through l have already been completed and are shown above.)

c. 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.

ASSETS LIABILITIES STOCKHOLDERS\' EQUITY Retained Transaction Accounts Merchandise Notes Accounts Paid-in Cash + Receivable+ Inventory + Equipment = Payable + Payable + Capital + Earnings + Revenue- 16,000+ 10,000+ (3,500)+ (2,800) + Expenses + 16.0001 + 10,000+ C. 3.5001 = d. 2,800 (18,000)+ 30,000+ 12,000+ 8,000 200 13,000 (8,000)+ 13,000 9 200+ (2,400)+ 7,800+ 8,400+ 18,000)+ 6,000 27,000 18,000 3,700 19,200 3,700+ k. 6,3206,320) + (9,440) 12,46016,000+ 9,440)+ 16,980+ 12,880+ 12,400+ 3.5001 = 10,000+ 040,000 32,700

Solution

Income statement for Blue Co. Stores, Inc.

Sales revenue = 40000

Less: cost of goods sold [18000+8000] = 26000

   Gross margin = 14000

Less: Expenses

Rent expense 2800

Advertising exp 200

salaries and wages   3,700    =6700

   Net income = $7300

Balance sheet

   Assets

Cash 16980

Accounts receiable 12880

Merchandise inventory 12400

Total current assets 42260

Equipment    3500

Total assets 45760

         Liabilities

Notes payable 10000

Accounts payable   12460

Total liabilities 22460

Shareholder\'s equity

paid in capital 16000

Retained earnings    7300

Total Total liabilities       23300   

Total liabilities and Total liabilities $45760