Ferguson Company was started in 2008 when it acquired $60,000 from the issue of common stock. The following data summarize the company's first years' operating activities. Assume that all transactions were cash transactions.
2008 2009 2010
Purchase of Inve 24,000 12,000 25,500
Sales 26,000 30,000 36,000
Cost goods sold 13,400 18,500 20,000
Selling & administrative expenseses (2008)5,500 (2009)8,200 (2010)10,100
Required
Prepare an income statement (use the multistep format) and balence sheet for each fiscal year. (Hint: Record the transaction data for each accounting period in the accounting equation before preparing the statements for that year.)
To prepare the Income Statement and Balance Sheet for each fiscal year, we will need to follow a step-by-step process. Let's start with the Income Statement first.
Step 1: Prepare the Income Statement for 2008:
Ferguson Company
Income Statement (2008)
Sales $26,000
Cost of Goods Sold $(13,400)
Gross Profit $12,600
Selling & Administrative Expenses $(5,500)
Net Income / (Loss) $7,100
Step 2: Prepare the Income Statement for 2009:
Ferguson Company
Income Statement (2009)
Sales $30,000
Cost of Goods Sold $(18,500)
Gross Profit $11,500
Selling & Administrative Expenses $(8,200)
Net Income / (Loss) $3,300
Step 3: Prepare the Income Statement for 2010:
Ferguson Company
Income Statement (2010)
Sales $36,000
Cost of Goods Sold $(20,000)
Gross Profit $16,000
Selling & Administrative Expenses $(10,100)
Net Income / (Loss) $5,900
Next, we will prepare the Balance Sheet for each fiscal year.
Step 4: Prepare the Balance Sheet for 2008:
Ferguson Company
Balance Sheet (2008)
Assets
Current Assets
Cash $60,000
Total Current Assets $60,000
Liabilities & Equity
Shareholder's Equity
Common Stock $60,000
Total Shareholder's Equity $60,000
Step 5: Prepare the Balance Sheet for 2009:
Ferguson Company
Balance Sheet (2009)
Assets
Current Assets
Cash $60,000
Total Current Assets $60,000
Liabilities & Equity
Shareholder's Equity
Common Stock $60,000
Total Shareholder's Equity $60,000
Step 6: Prepare the Balance Sheet for 2010:
Ferguson Company
Balance Sheet (2010)
Assets
Current Assets
Cash $60,000
Total Current Assets $60,000
Liabilities & Equity
Shareholder's Equity
Common Stock $60,000
Total Shareholder's Equity $60,000
Note: Since there are no additional transactions or changes stated in the question apart from the original common stock issuance of $60,000, the balance sheet remains the same for each fiscal year.
To prepare an income statement and balance sheet for each fiscal year, we need to follow these steps:
1. Evaluate the accounting equation for each fiscal year.
2. Calculate the net income/loss by deducting the cost of goods sold and selling & administrative expenses from sales.
3. Prepare the income statement using the multistep format.
4. Calculate the ending inventory by deducting the cost of goods sold from the purchase of inventory.
5. Compute the total assets, liabilities, and stockholders' equity for each fiscal year.
6. Prepare the balance sheet.
Let's go through each fiscal year and perform these steps:
1. 2008:
Accounting equation: Assets = Liabilities + Stockholders' Equity
Initially: Common Stock = $60,000, no liabilities.
Net Income:
Sales - Cost of Goods Sold - Selling & Administrative Expenses
$26,000 - $13,400 - $5,500 = $7,100
Income Statement (Multistep Format):
Sales: $26,000
Cost of Goods Sold: $13,400
Gross Profit: $12,600
Selling & Administrative Expenses: $5,500
Operating Income: $7,100
Ending Inventory:
$24,000 - $13,400 = $10,600
Balance Sheet:
Assets:
Cash: $60,000 (initial value)
Inventory: $10,600
Total Assets: $70,600 (the sum of cash and inventory)
Liabilities: $0
Stockholders' Equity:
Common Stock: $60,000
Retained Earnings: $7,100 (net income)
Total Stockholders' Equity: $67,100 (the sum of common stock and retained earnings)
2. 2009:
Accounting equation: Assets = Liabilities + Stockholders' Equity
No transactions regarding stock issuance or incurring liabilities mentioned.
Net Income:
Sales - Cost of Goods Sold - Selling & Administrative Expenses
$30,000 - $18,500 - $8,200 = $3,300
Income Statement (Multistep Format):
Sales: $30,000
Cost of Goods Sold: $18,500
Gross Profit: $11,500
Selling & Administrative Expenses: $8,200
Operating Income: $3,300
Ending Inventory:
$10,600 - $12,000 = -$1,400 (negative value indicates a loss)
Balance Sheet:
Assets:
Cash: $60,000 (no change)
Inventory: -$1,400
Total Assets: $58,600
Liabilities: $0
Stockholders' Equity:
Common Stock: $60,000
Retained Earnings: $3,300 (net income)
Total Stockholders' Equity: $63,300
3. 2010:
Accounting equation: Assets = Liabilities + Stockholders' Equity
No transactions regarding stock issuance or incurring liabilities mentioned.
Net Income:
Sales - Cost of Goods Sold - Selling & Administrative Expenses
$36,000 - $20,000 - $10,100 = $5,900
Income Statement (Multistep Format):
Sales: $36,000
Cost of Goods Sold: $20,000
Gross Profit: $16,000
Selling & Administrative Expenses: $10,100
Operating Income: $5,900
Ending Inventory:
-$1,400 - $25,500 = -$26,900 (negative value indicates a loss)
Balance Sheet:
Assets:
Cash: $60,000 (no change)
Inventory: -$26,900
Total Assets: $33,100
Liabilities: $0
Stockholders' Equity:
Common Stock: $60,000
Retained Earnings: $5,900 (net income)
Total Stockholders' Equity: $65,900
Remember to double-check the calculations and ensure that all necessary information is provided before preparing the statements.