Question

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.

Answer 1

The net income for the year is $ 17,000

Step-by-step 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