Record transactions. Use the horizontal model, or write the journal
entry, for each of
the following transactions that occurred during the first year of
operations at Kissick Co.
a. Issued 200,000 shares of $5-par-value common stock for $1,000,000 in cash.
b. Borrowed $500,000 from the Oglesby National Bank and signed a 12% note
due in two years.
c. Incurred and paid $380,000 in salaries for the year.
d. Purchased $640,000 of merchandise inventory on account during the year.
e. Sold inventory costing $580,000 for a total of $910,000, all on credit.
f. Paid rent of $110,000 on the sales facilities during the first 11 months of the
year.
g. Purchased $150,000 of store equipment, paying $50,000 in cash and
agreeing to pay the difference within 90 days.
h. Paid the entire $100,000 owed for store equipment, and $620,000 of the
amount due to suppliers for credit purchases previously recorded.
i. Incurred and paid utilities expense of $36,000 during the year.
j. Collected $825,000 in cash from customers during the year for credit sales
previously recorded.
k. At year-end, accrued $60,000 of interest on the note due to Oglesby National
Bank.

---

Clarification of Question by namaste-ga on 14 Feb 2005 18:43 PST

missed two one letter and second part of the question

l. At year-end, accrued $10,000 of past-due December rent on the sales facilities.
Prepare an income statement and balance sheet from transaction data.
a. Based on your answers to Problem 4.17, prepare an income statement
(ignoring income taxes) for Kissick Co.?s first year of operations and a
balance sheet as of the end of the year. (Hint: You may find it helpful to
prepare T-accounts for each account affected by the transactions.)
b. Provide a brief written evaluation of Kissick Co.?s results from operations
for the year and its financial position at the end of the year. In your opinion,
what are the likely explanations for the company?s net loss?

Very basic accounting problem.  This is your homework, isn't it?

Also, the problem states that you accrue $60,000 for the year,
correct?  This is supposed to be set at $30,000, which is 12% of the
$500,000 note. Still, I followed what was given (to correct this,
reduce interest expense and interest payable by $30,000).


INCOME STATEMENT:

Sales                 $   910,000.00
Less: Cost of Sales      (580,000.00)
------------------------------------
Gross Profit on Sales     330,000.00
Less Operating Expenses
Salaries and Wages        380,000.00
Rent Expense              120,000.00
Utilities Expense          36,000.00
------------------------------------
Loss from Operations     (206,000.00)
Interest Expense           60,000.00
------------------------------------
NET LOSS              $  (266,000.00)
====================================

BALANCE SHEET:

Cash                  $ 1,029,000.00 
Accounts Receivable        85,000.00 
Merchandise Inventory      60,000.00 
Equipment                 150,000.00 
------------------------------------
TOTAL ASSETS          $ 1,324,000.00
====================================

Accounts Payable      $    20,000.00
Rent Payable               10,000.00
Interest Payable           60,000.00
Notes Payable             500,000.00
------------------------------------
TOTAL LIABILITIES     $   590,000.00
------------------------------------

Capital               $ 1,000,000.00
Deficit                (  266,000.00)
------------------------------------
TOTAL EQUITY          $   734,000.00
------------------------------------
LIABILITIES & CAPITAL $ 1,324,000.00
====================================

The contribution margin (gross profit on sales) was not sufficient to
cover the operating expenses.  It's not even enough to cover salaries
and wages. Therefore, we have a net loss of $266,000.00.  It is,
however, common for all first-year businesses to have a net loss -
sales are still growing, and fixed costs are already set.