Question

Alex diaz, a former professional tennis star, operates diaz tennis shop at the cedar lake resort. at the beginning of the current season, the ledger of diaz tennis shop showed cash $2,500, inventory $1,700, and owner’s capital $4,200. the following transactions were completed during april. apr. 4 purchased racquets and balls from marx co. $840, fob shipping point, terms 2/10, n/30. 6 paid freight on purchase from marx co. $40. 8 sold merchandise to members $1,150, terms n/30. the merchandise sold had a cost of $790. 10 received credit of $40 from marx co. for a racquet that

a. What is the ending cash balance for April?
b. What is the net income for April?
c. What is the owner’s capital at the end of April?
d. What is the total cost of merchandise sold in April?

Answer 1

The ending cash balance for April is $2,460, the net income for April is $360, the owner's capital at the end of April is $4,560, and the total cost of merchandise sold in April is $790.

Step-by-step explanation:

To answer the series of business transactions for Diaz Tennis Shop and determine the ending cash balance for April, the net income for April, the owner's capital at the end of April, and the total cost of merchandise sold in April, we must first record each transaction and its effect on the business's accounts.

1. Purchase of inventory: Diaz purchases $840 of inventory with a discount of 2/10, n/30. However, because the payment time frame for the discount is not given, we will not assume the discount is taken. Therefore, inventory increases by $840, and accounts payable also increases by $840.
2. Payment of freight: Diaz pays $40 for freight, which decreases cash but is added to the inventory cost, making the total inventory cost $880.
3. Sales of merchandise: Diaz sells merchandise valued at $1,150, which increases accounts receivable by that amount. The cost of the merchandise sold is $790, so inventory decreases by $790 and cost of goods sold expense increases by $790.
4. Credit received: Diaz receives a $40 credit for a returned racquet, which decreases accounts payable by $40.

Now we can find the ending cash balance. Starting with $2,500 and subtracting the $40 paid for freight, we get $2,460 as the ending cash balance. To find the net income, we take the sales of $1,150 and subtract the cost of goods sold of $790, resulting in a gross profit of $360. Net income is simply the gross profit here, since there are no other expenses or revenues mentioned. The owner's capital at the end of April would be the beginning capital of $4,200 plus the net income of $360, totaling $4,560. The total cost of merchandise sold in April is the same as the cost of goods sold, which is $790.