Question

Dan Watson started a small merchandising business in 2018. The business experienced the following events during its first year of operation. Assume that Watson uses the perpetual inventory system.

1. Acquired $34,000 cash from the issue of common stock.

2. Purchased inventory for $27,200 cash.

3. Sold inventory costing $16,000 for $30,500 cash.

Required

1. Record the events in a horizontal statement model. In the Cash Flow column, use OA to designate operating activity, IA for investment activity, FA for financing activity, NC for net change in cash and NA to indicate the element is not affected by the event.
2. Prepare an income statement for 2018 (use the multistep format).
3. What is the amount of total assets at the end of the period?

Answer 1

Event	Assets		Stockholders' Equity
	Cash	Inventory	Common Stock	Retained earnings	Revenue	Expenses	Net income	Statement of Cash flows
1	34000	0	34000	0	0	0	0	34000	FA
2	-27200	27200	0	0	0	0	0	-27200	OA
3a	0	-16000	0	-16000	0	16000	-16000	0	NA
3b	30500	0	0	30500	30500	0	30500	30500	OA
Total	37300	11200	34000	14500	30500	16000	14500	37300	NC
b
Income Statement
For the Year Ended December 31, 2018
Sales	30500
Cost of goods sold	16000
Gross Margin	14500
Operating expenses	0
Net income	14500
c
Total Assets	48500	=37300+11200