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 warehouse 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 S10,000 worth of equipment. It plans to pay for the equipment in thirty days. 7. ACE sells S10,000 worth of goods to a mining company. The cost for the goods was $4,000. 8. A $20,000 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. 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 To expand he will need refuses to lend him any more money. Therefore, ACE sells 50,000 shares of 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

ACE Hardware Worksheet Account Transactions Trial Balance Income Statement Balance Sheet Debit Credit Debit Credit Debit Credit Debit Credit Cash 210000 154000 56000 56000 Other Current Assets 10000 10000 10000 Accounts Receivable 30000 30000 30000 Inventory 50000 19000 31000 31000 Land 20000 20000 20000 Building 80000 80000 80000 Equipment 20000 20000 20000 Accounts Payable 10000 10000 0 Mortgage Loan 2000 36000 34000 34000 Bank Loan 100000 100000 100000 Common Stock 15000 15000 15000 APIC 95000 95000 95000 Retained Earnings 3000 Dividend 2000 2000 Sales Revenue 30000 30000 30000 Cost of goods sold 19000 19000 19000 Interest Expense 6000 6000 6000 Total 459000 459000 274000 274000 25000 30000 247000 247000 Income Summary 5000 Grand Total 459000 459000 274000 274000 30000 30000 247000 247000 ACE Hardware Income statement Sales Revenue 30000 Expereience Cost of goods sold 19000 Interest expense 6000 Total expenses 25000 Net income 5000 ACE Hardware Balance sheet Assets: Cash 56000 Accounts Receivable 30000 Inventory 31000 Other current assets 10000 Land 20000 Building 80000 Equipment 20000 Total Assets 247000 Liabilities and equity Mortgage Loan 34000 Bank Loan 100000 Total liabilities 134000 Common stock 15000 APIC 95000 Retained earnings 3000 Total liabilities and equity 247000