During Year 1, Hardy Merchandising Company purchased $40,000 of inventory on account. Hardy sold inventory on account that cost $24,500 for $38,000. Cash payments on accounts payable were $22,000. There was $26,000 cash collected from accounts receivable. Hardy also paid $5,100 cash for operating expenses. Assume that Hardy started the accounting period with $20,000 in both cash and common stock.

Required

a. Identify the events described in the preceding paragraph and show them in a horizontal financial statements model like the following one:

b. What is the balance of accounts receivable at the end of Year 1?

c. What is the balance of accounts payable at the end of Year 1?

d. What are the amounts of gross margin and net income for Year 1?

e. Determine the amount of net cash flow from operating activities.

f. Explain why net income and retained earnings are the same for Hardy. Normally, would these amounts be the same? Why or why not?

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Balance Sheet Income Statement Statement of Cash Flows Assets Llab. Stk. Equity Cash + Accts. Rec. + Inv. Accts. Pay. + Com. Stk. + Ret. Earn. Rev. Exp. = Net Inc. %3! 20,000 + NA + NA NA 20,000 NA NA NA NA FA !! %3D