Question: Bob Hansen opens a retail store on January 1 2013

Bob Hansen opens a retail store on January 1, 2013. Hansen invests $50,000 for all of the common stock of the firm. The store borrows $40,000 from a local bank. The store must repay the loan with interest for both 2013 and 2014 on December 31, 2014. The interest rate is 10% per year. The store purchases a building for $60,000 cash. The building has a 30-year life, zero estimated salvage value, and is to be depreciated using the straight-line method. The store purchases $125,000 of merchandise on account during 2013 and pays $97,400 of the amount by the end of 2013. A physical inventory taken on December 31, 2013, indicates $15,400 of merchandise is still on hand.
During 2013, the store makes cash sales to customers totaling $52,900 and sales on account totaling $116,100. Of the sales on account, the store collects $54,800 by December 31, 2013. The store incurs and pays other costs as follows: salaries, $34,200; utilities, $2,600. It has unpaid bills at the end of 2013 as follows: salaries, $2,400; utilities, $180. The firm is subject to an income tax rate of 40%. Income taxes for 2013 are payable on March 15, 2014. Assume that Hansen applies U.S. GAAP, and reports in U.S. dollars.
a. Prepare an income statement for Hansen Retail Store for 2013, assuming the accrual basis of accounting and revenue recognition at the time of sale. Show supporting computations for each revenue and expense.
b. Prepare a balance sheet for Hansen Retail Store as of December 31, 2013. Show supporting computations for each balance sheet item.

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  • CreatedMarch 04, 2014
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