Question

The following information is available for two different types of businesses for the 2016 accounting year. Hopkins CPAs is a service business that provides accounting services to small businesses. Sports Clothing is a merchandising business that sells sports clothing to college students.
Data for Hopkins CPAs
1. Borrowed $90,000 from the bank to start the business.
2. Provided $50,000 of services to clients and collected $50,000 cash.
3. Paid salary expense of $32,000.
Data for Sports Clothing
1. Borrowed $90,000 from the bank to start the business.
2. Purchased $50,000 inventory for cash.
3. Inventory costing $26,000 was sold for $50,000 cash.
4. Paid $8,000 cash for operating expenses.
Prepare an income statement, balance sheet, and statement of cash flows for each of the companies.

Answer 1

Answer:

Hopkins CPAs and Sports Clothing

Hopkins CPAs:

Income Statement

Service Revenue $50,000

Salaries expense   32,000

Net Income           $18,000

Balance Sheet

Cash                  $108,000

Total assets     $108,000

Bank Loan          $90,000

Net Income           18,000

Total liabilities +

  equity           $108,000

Statement of Cash Flow

Cash from operations:

Net income             $18,000

Change in working

capital                   $90,000

Net operating cash $108,000

Reconciliation with cash:

Cash balance         $108,000

Sports Clothing:

Income Statement

Sales Revenue                    $50,000

Cost of goods sold 26,000

Operating expense  8,000  34,000

Net income                         $16,000

Balance Sheet

Cash                      $82,000

Inventory                 24,000

Total assets        $106,000

Bank Loan           $90,000

Net Income            16,000

Total liabilities +

 equity             $106,000

Statement of Cash Flow

Cash from operations:

Net income               $16,000

Change in working

capital:

Bank                         $90,000

Inventory                   (24,000)

Net operating cash $82,000

Reconciliation with cash:

Cash balance         $82,000

Explanation:

a) Data and Calculations:

Hopkins CPAs

Cash account:

Bank loan             $90,000

Service revenue    50,000

Salaries expense (32,000)

Balance =           $108,000

Trial balance

Cash                  $108,000

Bank Loan                            $90,000

Service Revenue                   50,000

Salaries expense 32,000

Totals                $140,000 $140,000

Sports Clothing:

Cash account:

Bank loan                $90,000

Inventory                  (50,000)

Sales revenue          50,000

Operating expense  (8,000)

Balance =              $82,000

Trial balance

Cash                      $82,000

Bank Loan                            $90,000

Inventory                 24,000

Cost of goods sold 26,000

Sales Revenue                      50,000

Operating expense  8,000

Totals                  $140,000 $140,000