Acct 2210 Zeigler: Demo 4-1 - Inventory Purchase & Sale (Perpetual Method)

Acct 2210 Zeigler: Demo 4-1 - Inventory Purchase & Sale (Perpetual Method) The following pertains to Jefferson Hardware Store. Jefferson uses the perpetual inventory method. 1. Jefferson Hardware was started on January 1, 2015 when it acquired $5,000 cash by issuing stock. 2. The store paid $4,500 cash to purchase inventory. 3. Jefferson sold for $6,000 cash inventory that cost $3,500. 4. During the year, the store paid $2,000 cash for operating expenses. Required: Record the events using the horizontal financial statements model. Prepare a formal income statement and a balance sheet. Demonstration Problem 4-1 Solution Assets = Liab. + Equity Rev. ─ Exp. = Net Inc. Cash Flow No. Cash + Inven. = Liab. + Com. Stk. + Ret. Earn. Beg. bal. -0- + 0 = 0 + 0 + 0 0 – 0 = 0 0 1 5,000 + 0 = 0 + 5,000 + 0 0 – 0 = 0 5,000 FA

2 (4,500) + 4,500 = 0 + 0 + 0 0 – 0 = 0 (4,500) OA

3a 6,000 + 0 = 0 + 0 + 6,000 6,000 – 0 = 6,000 6,000 OA

3b 0 + (3,500) = 0 + 0 + (3,500) 0 – 3,500 = (3,500) 0

4 (2,000) + 0 = 0 + 0 + (2,000) 0 – 2,000 = (2,000) (2,000) OA

Totals 4,500 + 1,000 = 0 + 5,000 + 500 6,000 – 5,500 = 500 4,500 NC Jefferson Hardware Store Financial Statements

Income Statement For the Year Ended December 31, 2015

Sales $6,000 Cost of goods sold (product cost) (3,500) Gross margin 2,500 Operating expenses (period cost) (2,000) Net income $ 500

Balance Sheet as of December 31 Assets Cash $4,500 Inventory 1,000 Total assets $5,500

Stockholders’ equity Common stock $5,000 Retained earnings 500 Total stockholders’ equity $5,500