Northwest Sales had the following transactions in Year 1:
1. The business was started when it acquired $200,000 cash from the issue of common stock.
2. Northwest purchased $900,000 of merchandise for cash in Year 1.
3. During the year, the company sold merchandise for $1,200,000. The merchandise cost $710,000. Sales were made under the following terms:

a. $520,000 Cash sales
b. 380,000 Credit card sales
c. 300,000 Sales on account

4. The company collected all the amount receivable from the credit card company.
5. The company collected $210,000 of accounts receivable.
6. The company paid $190,000 cash for selling and administrative expenses.
7. Determined that 5 percent of the ending accounts receivable balance would be uncollectible.

Required
a. Show the effects of each of the transactions on the elements of the financial statements, using a horizontal statements model like the one shown next. Use + for increase, − for decrease, and NA for not affected. The first transaction is entered as an example.

b. Prepare an income statement, statement of changes in stockholders’ equity, balance sheet, and statement of cash flows for Year 1.

Transcribed Image Text:

Balance Sheet Income Statement Statement of Cash Flows Event Llab. Assets Exp. Net Inc. Rev. No. + Equity NA + FA 1. NA NA NA