Question

Expert Computers was started in 2018. The company experienced the following accounting events during its first year of operation:

1. Started business when it acquired $87,000 cash from the issue of common stock.

2. Purchased merchandise with a list price of $71,000 on account, terms 3/10, n/30.

3. Paid off one-half of the accounts payable balance within the discount period.

4. Sold merchandise on account for $57,700. Credit terms were 2/20, n/30. The merchandise had cost Expert Computers $34,600.

5. Collected cash from the account receivable within the discount period.

6. Paid $10,300 cash for operating expenses.

7. Paid the balance due on accounts payable. The payment was not made within the discount period.

Required

Record the events in a horizontal statements model below. In the Cash Flows column, use the letters OA to designate operating activity, IA for investing activity, FA for financing activity, NC for net change in cash and NA to indicate accounts not affected by the event. The first event is recorded as an example.

What is the amount of gross margin for the period? What is the net income for the period?

Answer 1

Expert Computers
Horizontal Statements Model for 2018
	Assets			Liabilities	Stockholders' Equity		Income Statement
Event	Cash	Accounts Receivable	Inventory	Accounts Payable	Common Stock	Retained Earnings	Revenue	Expenses	Net Income	Statement of Cash Flows
1	87,000				87,000					87,000 FA
2			71,000	71,000						-
3	-34,435		-1,065	-35,500						-34,435 OA
4a		57,700					57,700
4b			-34,600					34,600
5	56,546	- 57,700					- 1,154			56,546 OA
6	-10,300							10,300		-10,300 OA
7	-35,500			-35,500						- 35,500 OA
Balance	63,311	0	35,335	0	87,000	11,646	56,546	44,900	11,646

Gross Margin = Net Sales - Cost of Goods Sold = $ 56,546 - $ 34,600 = $ 21,946

Net Income = Gross Margin - Operating Expenses = $ 21,946 - $ 10,300 = $ 11,646.