Apple began operations in May, 2003 by selling common stock to owners in exchang

Question

Apple began operations in May, 2003 by selling common stock to owners in exchange for $90,000 cash. During 2003, Apple entered into the following transactions:

1. On May 23, Apple purchased inventory for $50,000 cash.

2. On June 1, Apple purchased a three-year insurance policy for $23,400 cash.

3. On July 1, Apple received $49,500 cash from a customer for services to be performed over the next 18 months.

4. On August 1, Apple purchased equipment for $60,000 cash. The equipment was assigned a 10-year life and a $2,400 residual value.

5. On August 18, Apple sold one-half of the inventory that was purchased on May 23 to a customer for $44,000 cash.

Calculate the net income that Apple would report in its December 31, 2003 balance sheet after all the above transactions are recorded and all necessary adjusting entries are made and posted.

Explanation / Answer

Net Income that Apple would report in its 31st Dec'2003 in Balance sheet is $28,550.

Please see the detailed working for this as below:-

Journal Entries

Statement Showing Profit & Loss as on 31st Dec, 2003 Particulars Amount($) Revenue :- Sale of Goods 44,000 Sale of Services 16,500 Total Revenue(A) 60,500 Cost Insurance Cost 4,550 Cost of Goods Sold Purchase 50,000 (-) Closing Stock (25,000) 25,000 Depreciation 2,400 Total Cost(B) 31,950 Net Income or Profit(A-B) 28,550 Balance Sheet as on 31st Dec, 2003 Particulars Amount($) Non Current Assets Equipment 60,000 Less: Accumulated Dep (2,400) 57,600 Current Assets Cash 50,100 Inventory 25,000 Prepayment or Prepaid 18,850 93,950 Total Assets 151,550 Equity & Liabilities Share Capital 90,000 Profit/Retained Earning 28,550 Current Liabilities Deferred Revenue 33,000 Total Liabilities 151,550

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