The following transactions apply to Ozark Sales for 2016: 1. The business was started when the...

Question:

The following transactions apply to Ozark Sales for 2016:

1. The business was started when the company received $50,000 from the issue of common stock.

2. Purchased equipment inventory of $380,000 on account.

3. Sold equipment for $510,000 cash (not including sales tax). Sales tax of 8 percent is collected when the merchandise is sold. The merchandise had a cost of $330,000.

4. Provided a six-month warranty on the equipment sold. Based on industry estimates, the warranty claims would amount to 2 percent of sales.

5. Paid the sales tax to the state agency on $400,000 of the sales.

6. On September 1, 2016, borrowed $50,000 from the local bank. The note had a 4 percent interest rate and matured on March 1, 2017.

7. Paid $6,200 for warranty repairs during the year.

8. Paid operating expenses of $78,000 for the year.

9. Paid $250,000 of accounts payable.

10. Recorded accrued interest on the note issued in transaction no. 6.

Required:

a. Prepare the income statement for 2016.

b. Prepare the balance sheet for 2016.

c. Prepare the statement of cash flows for 2016.

Cash Balance

When preparing financial statements, the balance of cash presented in the statement of cash flows should equal to the amount of cash presented in the balance sheet, regardless of whether direct of indirect method is used in computing for the cash flows. It should have a normal balance of debit or in cash flow, it should be p

Answer and Explanation: 1

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a. Prepare the income statement for 2016.

Sales510,000
Cost of Goods Sold-330,000
Gross Margin180,000
Warranty Expense-10,200
Operating Expense-78,0...

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What Is Cash Flow? - Definition, Calculation & Example

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