Question

During Year 1, Hardy Merchandising Company purchased $20,000 of inventory on account. Hardy sold inventory on account that cost $15,000 for $22,500. Cash payments on accounts payable were $12,500. There was $20,000 cash collected from accounts receivable. Hardy also paid $4,000 cash for operating expenses. Assume that Hardy started the accounting period with $18,000 in both cash and common stock.

Required:
a. Identify the events described in the preceding paragraph and show them in a horizontal statements model. The first event is recorded as an example.
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.

Answer 1

Answer and Explanation:

a. The events described should be shown in the attachment below;

b. The balance of account receivable at the end of year 1 is $2,500

c. The balance of account payable at the end of year 1 is $7,500

d. The amount of gross margin and net income is

Gross margin = $22,500 - $15,000 = $7,500

Net Income = $7,500 - $4,000 = $3,500

e. The amount of net cash flow from operating activities is $3500