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11 December, 21:13

Dan Watson started a small merchandising business in 2018. The business experienced the following events during its first year of operation. Assume that Watson uses the perpetual inventory system.

(1) Acquired $30,000 cash from the issue of common stock.

(2) Purchased inventory for $18,000 cash.

(3) Sold inventory costing $15,000 for $32,000 cash.

Prepare an income statement for 2018.

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  1. 12 December, 00:15
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    The net income for the year is $ 17,000

    Explanation:

    The first transaction has no impact on the income statement.

    The second transaction is recorded as:

    Inventory Debit $ 18,000

    Cash Credit $ 18,000

    The third transaction is recorded by the following entries

    Cash Debit $ 32,000

    Sales Credit $ 32,000

    Cost of Goods sold Debit $ 15,000

    Inventory Credit $ 15,000

    So the sales - cost of goods sold results in the income for the year
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