Questions 4, 5, and 6 refer to the following information X Company is a merchand
ID: 2599388 • Letter: Q
Question
Questions 4, 5, and 6 refer to the following information X Company is a merchandiser and prepares monthly financial statements. The following is its balance sheet at the beginning of January:
Balance Sheet January 1
The following summary transactions occurred during January:
Sold stock to investors for $46,000.
Borrowed $28,000 from a bank.
Bought merchandise from suppliers, paying $3,042 and promising to pay $5,409 next month.
Bought equipment from a manufacturer, paying $30,500 and promising to pay $4,600 in three months.
Paid $4,287 to merchandise suppliers that it had promised to pay.
Sold merchandise, receiving $16,110 cash and promises to pay of $4,280; the merchandise that was sold previously cost $10,195.
Paid a total of $594 for rent and insurance in advance.
Received $2,800 from customers who had promised to pay. Paid $5,830 for wages, utilties, and other miscellaneous expenses.
Note: Ignore adjusting entries.
4. What was the cash balance on January 31?
5. What were total equities on January 31?
6. What was net income in January?
ASSETS EQUITIES Cash 54,772 Account Payable 56,673 Accounts Receivable 34,642 Wages Payable 1,235 Inventory 84,302 Notes Payable 31,178 Prepaid Rent 5,462 Paid-In Capital 251,220 Equipment 227,521 Retained Earnings 66,393 Total Assets 406,699 Total Equitues 406,699Explanation / Answer
4.
In $
Opening Cash
54,772
Stock sold to investors
46,000
Borrowed from Bank
28,000
Bought Merchandise from Suppliers
(3,042)
Purchase of Equipment
(30,500)
Paid to Merchant that promised to pay
(4,287)
Sold Merchandise
16,110
Rent and insurance paid in advance
(594)
Received from customer which promised to pay
2,800
Wages and misc expenses
(5,830)
Closing Cash
103,429
5.
It is mentioned in the Balance Sheet that the Company Equity contains Total Liabilities but that not true, Equity means Total Assets – Total Liabilities.
OR
Equity = Shareholder’s fund
Total Equity / Shareholders Fund = Opening Paid in capital + Opening Retained Earnings + Stocks sold to investors
= 251,220+ 66,393+ 46,000
Total Shareholders Fund = $363,613
6.
There is no Sales or Purchase information, so we will calculate profit by deducting Total Amount Paid to Customers for this year from Total amount received from Customers for this year,
Assuming that the amount paid is for purchases and Amount received is for Sales.
Net Income = Total amount received from Customers for this year – Total Amount Paid to Customers for this year - wages, utilities, and other miscellaneous expenses
= (16,110 + 4,280) - (3,042 + 5,409) - 5,830
= 20,390(Sales) – 8,451(Purchases) – 5,830(Expenses)
Net Income = $6,109
I have not considered the amount of previous month which the company has received (Like Received $2,800 from customers who had promised to pay) or the amount which the expenses incurred last month and promised to pay this month (like Paid $4,287 to merchandise suppliers that it had promised to pay)
And the expenses which are paid in advance as this and above don’t belong to Current month for which we are calculating the Net income
In $
Opening Cash
54,772
Stock sold to investors
46,000
Borrowed from Bank
28,000
Bought Merchandise from Suppliers
(3,042)
Purchase of Equipment
(30,500)
Paid to Merchant that promised to pay
(4,287)
Sold Merchandise
16,110
Rent and insurance paid in advance
(594)
Received from customer which promised to pay
2,800
Wages and misc expenses
(5,830)
Closing Cash
103,429
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