Problem $6-3$

$15$ points

Lafayette Inc. began operations when $it$ acquired

$$225,000$ cash from the issue $of$ common stock

$on$ January $1,2020.$ The cash acquired was immediately used $to$ purchase equipment for

$$225,000$

that had $a$

$$45,000,$ salvage value and $an$ expected useful life $of$ four years. The equipment was

used $to$ produce the following revenue stream $(assume$ all revenue transactions are for cash$).At$ the

beginning $of$ the fifth year, the equipment was sold for

$$22,500$

cash.

Lafayette Inc. uses straight$-$line depreciation. Assume depreciation $is$ the only expense $to$ record.

Cash Revenue

$$,42,{2020}_{{?}_{?}}{2021}_{{?}_{?}}(46,000)$$

$48,000$

$\frac{2023}{39,000},{2024}_{?}$

REQUIRED

Prepare income statements, balance sheets, and statements $of$ cash flows for each $of$ the five years.

Students may want $to$ utilize a horizontal model for each year $to$ organize transactions and verify numbers for financial statements

Problem $7-1$

$15$ points

The following transactions apply $to$ Sparty Corp. for $2024$:

The business was started when Sparty Corp. received

$$325,000$ from the issue $of$ common stock.

Purchased $$950,000of$ merchandise $on$ account.

Sold merchandise for

$$1,200,000$ cash $(not$ including sales tax$).$ Sales tax $of$

$is$ collected when the merchandise $is$ sold. The merchandise had a cost $of$

$$725,{000}^{7\%}$

Good idea $to$ split this into two accounting entries $-$ think chapter $3.$ Hint: $3$a and $3b$

Provided a six$-$month warranty $on$ the merchandise sold. Based $on$ industry estimates, the

warranty payable claims would amount $to$

$2\%$

$of$ merchandise sales excluding sales tax. Think $ofitas$ a contingent liability

Paid the sales tax $of$

$$800,000of$ the sales, $(not$ the entire amount$)$

$On$ September $1,2024,$ borrowed

$$125,000$ from the local bank. The note had $a$