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.
Required
a. Prepare an income statement, balance sheet, and statement of cash flows for each of the companies.
b. Which of the two businesses would have product costs? Why?
c. Why does Hopkins CPAs not compute gross margin on its income statement?
d. Compare the assets of both companies. What assets do they have in common? What assets are different? Why?