Problem 32 On January 1 2016 Ron started a baseball book bus

Problem 3-2 On January 1, 2016, Ron started a baseball book business that he named Ron\'s Baseball Books (RBB). The company experienced the following events during the first year of operation. Started the business by issuing common stock for $225,000 cash. 2. Paid $177,750 cash to purchase inventory. Sold merchandise that cost $90,000 for $202,500 on account. Collected $180,000 cash from accounts receivable 1/9/20181:44 PM cash Paid $45,000 for operating expenses. Wrote off $5,000 of inventory REQUIRED 1. Organize ledger accounts under the horizontal model. 2. Prepare an income statement, a balance sheet, and a statement of cash flows. 3. Since RBB sold inventory for $202,500 he will be able to recover more than half of the 225,000 he invested in the stock. Do you agree with this statement? Why or why not? Hint: Think Income generated by inventory sold compared to the original investment

Solution

1)
cash(db)225000
Common stock(cR) 225000

inventory(db)177750
cash(cr)177750

account receivable(db) 202500
revenue(cr)202500
cost of goods sold(db)90000
inventory(cR)90000

cash(db)180000
accounts receivable(cr) 180000

operating expense(db) 45000
cash(cr)450000

loss on inventory write down(db) 5000
inventory(cr)5000

2) Income statement:
Revenue 202500
cost of goods sold 90000
gross profit=112500
Operating expense 45000
loss on inventory 5000
net income =112500-45000-5000=62500
Balance sheet:
Assets:
Cash(db) 182250
accounts receivable(db)22500
Incentory(db) 82750
Total assets=287500
Liabilites and equity:
Common stock(cr) 225000
Retained earning (cr) 62500
Total 287500

statement of cash flows:
Cash flow from operating activites:
Net income=62500
change in accounts receivable=-22500
chnage in inventory=-82750
Net cash flow from operating activites=-42750
Cash flow from investing activites=0
cash flow from finance activites:
cash raised from common stock=225000
Net channge in cahs flow=-42750+225000=182250

3)Income generated from inventory sold is just 112500 and it is just half of the investment and also there are operating expenses of 45000. so did not recover his investment