ACCT210, Study Guide 2 ssercise 5: Your company, LCross, Inc. buys specialized s

Question

ACCT210, Study Guide 2 ssercise 5: Your company, LCross, Inc. buys specialized space travel related merchandise from arious manufacturers, and then re-sells such merchandise to retail customers. During its first month of business operation, the following business transactions occurred in May 2011. (1) On May 1, the owners, you, together with some other bean cash in LCross, Inc. in exchange for common stock. (2) On May 1, LCross paid $3,000 cash as its monthly rental expense for a retail space at MOA. (3) On May 1·LCross prepaid $4,500 cash to a network station for advertisement in the counters invested $750,000 of following three months (from May to July). (4) On May 3LCross acquired office supplies of $1,500 and promised to pay to its suppliers on June 2,2011 (5) On May 8, LCross acquired $225,000 of merchandise inventory from various manufacturing (6) On May 18LCross sold and delivered the merchandise for $75,000 to a local school. The es. LCross paid $75000 in cash and promised to pay the rest on July 7.2011. cost of such merchandise was $30,000 to LCross. And the school paid $7 500 in cash and would pay for the remaining amount in 30 days. (7) On May 25LCross signed a sales contract with NASA and promised to deliver merchandise of $300,000 on June 20. NASA paid LCross $300,000 in cash on May 25. (8) On May 31, the employees at LCross had earned their May salaries of S60 000·LCross paid $55,000 in cash to its employees and would pay the rest on June 2,2011 (9) On May 31LCross determined that $300 of the supplies were still on hand. Record the May supplies adjusting entry to reflect the use of supplies during this month. (10) When you prepare journal entries for LCross, Inc. on next page, make sure that everything is up-to-date by May 31. Requirement l:Based on the following transactions of LCross Inc., prepare a classified balance sheet, a multiple-step income statement, and statement of retained earnings for LCross company's first month of business operation. (Note: These three financial statements will be provided in mid-term exam2 for your preparation of the company's statement of cash flows.) Requirement 2: Please also prepare its statement of cash flows (using the indirect method) based on the above financial statements that you prepared.

Explanation / Answer

Workings:

L Cross Inc. Income statement for the month ending May31, 2011 Sales revenue 75000 Cost of goods sold 30000 Gross income 45000 Expenses    Salaries expense 60000     Rent expense 3000     Ofice supplies expense 1200     Advertising expense 1500 Total expenses 65700 Net income /(loss) -20700 L Cross Inc. Statement of retained earnings for the month May 2011 Beginning balance as on May1, 2011 0 Net income for May , 2011 -20700 Ending balance as on May31, 2011 -20700 L Cross Inc. Balance sheet as at May 31, 2011 Assets Cash 918500 Accounts Receivable 67500 Inventory 195000 Office supplies 300 Prepaid advertising 3000 Total Assets 1184300 Liabilities and equity Accounts Payable 150000 Unearned Revenue 300000 Salaries Payable 5000 Total liabilities 455000 Shareholders' equity    Common stock 750000    Retained earnings -20700 Total shareholders' equity 729300 Total liabilities and equity 1184300 L Cross Inc. Statement of cash flow for the month of May 2011 Cash flow from operations Net income -20700 Adjustments for current accounts Accounts receivable -67500 Inventory -195000 Office supplies -300 Prepoaid advertising -3000 Accounts payable 150000    Unearned revenue 300000 Salaries payable 5000 Cash flow from operations 168500 Cash flow from Financing activities Issue of common stock 750000 Net Cash flow 918500 Beginning cash balance 0 Ending cash balance 918500

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