The following transactions apply to Ozark Sales for Year 1:

The business was started when the company received $49,000 from the issue of common stock.
Purchased equipment inventory of $176,500 on account.
Sold equipment for $203,000 cash (not including sales tax).
Sales tax of 7 percent is collected when the merchandise is sold. The merchandise had a cost of $128,000.
Provided a six-month warranty on the equipment sold. Based on industry estimates, the warranty claims would amount to 3 percent of sales.
Paid the sales tax to the state agency on $153,000 of the sales.
On September 1, Year 1, borrowed $20,000 from the local bank. The note had a 6 percent interest rate and matured on March 1, Year 2.
Paid $5,500 for warranty repairs during the year.
Paid operating expenses of $53,500 for the year.
Paid $124,200 of accounts payable.
Recorded accrued interest on the note issued in transaction no. 6.

Prepare the income statement, balance sheet, and statement of cash flows for year 1.

Answer and Explanation:

According to the scenario, The presentation of the each financial statement is presented below:

                                                    Income Statement

Particular                                         Amount ($)

Sales                                                    203,000

Less - merchandise cost                    128,000

Gross Profit                                              75,000

Less-Operating expenses paid             53,500

Less-Paid warranty repairs                       5,500

Less-Provision for warranty($203,000 ×3%) 6,090

Less-interest expenses($20,000 × 6% × 4 ÷ 12) 400

Net Income                                                   9510

                                              Balance Sheet

Assets        Amount ($)               Liabilities

                                                     & stockholder’s equity Amount ($)

Cash        92,300                       Accounts payable

                                                          ($176,500-$124,200)     52,300

Merchandise

inventory

($176,500-$128,000)  48,500    Sales tax payable

                                                          {($203,000 × 7%) - $10,710}  3,500

                                              Warranty payable 6,090

                                               Interest payable 400

                                               Notes payable 20,000

                                               Common stock equity 49,000

                                               Retained earnings 9,510

Total              140,800                              Total            140,800

                                                  Cash Flow Statement

Particular                                                                 Amount($)

Cash flow from operating activities:-  

Cash receipt from sale                                                   217,210

Less - Paid accounts payable                                  -124,200

Less - Sales tax paid                                                  -10,710

Less - Paid warranty repairs                                           -5,500

Less - paid operating expenses                                  -53,500

Total amount of Cash flow from operating activities 23,300

Cash flow from investing activities:-  

Cash flow from financing activities:-  

Issue of common stock                                                        49,000

Add-Borrowing from local bank                                      20,000

Total amount of Cash flow from financing activities        69,000

Net increase in cash                                                        92,300

Opening cash balance                                                               -

Ending cash balance                                                           92,300

Working note:

Total Cash  Amount

Particulars                                                            Amount ($)

Amount received from issue of common stock        49,000

Add-Sold equipment $203,000 + ($203,000 × 7%) 217,210

Less-Sales tax paid to the state agency ($153,000 × 7%) 10,710

Add-Borrowed from local bank                                       20,000

Less-Paid warranty repairs                                               5,500

Less-Paid operating expenses                                    53,500

Less-Paid accounts payable                                            124,200

Net cash                                                                          92,300

                                  Retained Earnings

Particulars                                                 Amount ($)

Sold equipment                                       203,000

Less-Merchandise cost                              128,000

Less-Paid warranty repairs                        5,500

Less-Paid operating expenses              53,500

Less-interest expenses                              400

Less-Provision for warranty                       6,090

Net Retained earnings                               9,510

These are items of the financial statement i.e listed above

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