Financial Reporting, Financial Statement Analysis and Valuation
8th Edition
ISBN: 9781285190907
Author: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher: Cengage Learning
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Textbook Question
Chapter 2, Problem 20PC
Analyzing Transactions. Using the analytical framework, indicate the effect of the following related transactions of a firm.
- a. January 1: Issued 10,000 shares of common stock for $50,000.
- b. January 1: Acquired a building costing $35,000, paying $5,000 in cash and borrowing the remainder from a bank.
- c. During the year: Acquired inventory costing $40,000 on account from various suppliers.
- d. During the year: Sold inventory costing $30,000 for $65,000 on account.
- e. During the year: Paid employees $15,000 as compensation for services rendered during the year.
- f. During the year: Collected $45,000 from customers related to sales on account.
- g. During the year: Paid merchandise suppliers $28,000 related to purchases on account.
- h. December 31: Recognized
depreciation on the building of $7,000 for financial reporting. Depreciation expense for income tax purposes was $10,000. - i. December 31: Recognized compensation for services rendered during the last week in December but not paid by year-end of $4,000.
- j. December 31: Recognized and paid interest on the bank loan in Part b of $2,400 for the year.
- k. Recognized income taxes on the net effect of the preceding transactions at an income tax rate of 40%. Assume that the firm pays cash immediately for any taxes currently due to the government.
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