Balance Sheet and Income Statement Exercise 1 John Smith put

Balance Sheet and Income Statement Exercise 1. John Smith puts $10,000 in cash in his new ACE hardware business. 2. ACE borrows $100.000 from the bank in which the principle will be paid back five years from now and interest will be paid at the end of each year. The interest rate is 5%. 3. ACE buys a warchouse for $40.000. ACE gives $4,000 as a down payment and the rest will be mortgaged 4. ACE purchases a delivery truck for $10,000 in cash. 5. ACE buys $50,000 of inventory with cash. 6. ACE buys $10.000 worth of equipment. It plans to pay for the equipment in thirty days 7. ACE sells $10,000 worth of goods to a mining company. The cost for the goods was $4.000. 8. A S20,000 order was sold to an electric company, which plans to pay ACE in 15 days. The material cost was $15,000. 9. ACE purchases a Certificate of Deposit (CD) at the bank for $10,000. It will mature in six months. 10. John wants to expand his business by opening another store. To expand he will need S100.000. The bank refuses to lend him any more money. Therefore, ACE sells 50.000 shares of stock for $2 a share. The stock has a par value of.10 a share. 11. ACE buys, with cash. a new building for $40,000, land for $20.000 and pays for the equipment he bought last month. 12. After one year of operation ACE pays interest on its $100,000 loan from the bank. 13. ACE paid $2,000 on the principle part of its warehouse loan and $1,000 in interest for a total payment of $3,000. 14. ACE pays out $2.000 in dividends.

Solution

Trial Balance Particulars Dr. Amt. Cr. Amt. Cash      56,000.00 Inventory      31,000.00 Accounts Receivable      30,000.00 Deposits at Bank      10,000.00 Equipment      10,000.00 Warehouse      40,000.00 Delivery Truck      10,000.00 Building      40,000.00 Land      20,000.00 Accounts Payable                         -   Notes Payable        100,000.00 Mortgage Payable          34,000.00 Common Stock          15,000.00 Paid in Capital in Excess of Par          95,000.00 Dividends        2,000.00 Sales Revenue          30,000.00 Cost of Goods Sold      19,000.00 Interest Expense        6,000.00 Total    274,000.00        274,000.00                         -   ACE HARDWARE Income Statement Sales Revenue      30,000.00 Cost of Goods Sold      19,000.00 Gross Profit      11,000.00 Less: Expenses Interest Expense        6,000.00 Net Income        5,000.00 ACE HARDWARE Balance Sheet Assets Current Assets Cash 56000 Inventory 31000 Accounts Receivable 30000 Deposits at Bank 10000        127,000.00 Property, Plant & Equipment Equipment 10000 Warehouse 40000 Delivery Truck 10000 Building 40000 Land 20000        120,000.00 Total Assets        247,000.00 Liabilities & Stockholders\' Equity Liabilities Current Liabilities                         -   Long-Term Liabilities Notes Payable    100,000.00 Mortgage Payable      34,000.00        134,000.00 Total Liabilities        134,000.00 Stockholders\' Equity Common Stock      15,000.00 Paid in Capital in Excess of Par      95,000.00 Paid-in Capital    110,000.00 Retained Earnings        3,000.00 Total Stockholders\' Equity        113,000.00 Total Liabilities & Stockholders\' Equity        247,000.00 ACE HARDWARE Statement of Retained Earnings Beginning Balance                     -   Net Income        5,000.00 Sub-total        5,000.00 Dividends        2,000.00 Ending Balance        3,000.00