2-54 Transaction Analysis and Financial Statements, Including Dividends

(Alternates are 2-47, 2-48, 2-50, and 2-52.) Consider the following balance sheet of a wholesaler

of childrens toys:

Gecko Toy Company

Balance Sheet, December 31, 20X0

Assets Liabilities and Stockholders Equity

Liabilities

Cash $ 400,000 Accounts payable $ 800,000

Accounts receivable 400,000 Stockholders equity

Merchandise inventory 860,000 Paid-in capital $360,000

Prepaid rent 45,000 Retained earnings 645,000

Equipment 100,000 Total stockholders equity 1,005,000

Total $1,805,000 Total $1,805,000

The following is a summary of transactions that occurred during 20X1:

a. Acquisitions of inventory on open account, $1 million.

b. Sales on open account, $1.5 million; and for cash, $200,000. Therefore, total sales were

$1.7 million.

c. Merchandise carried in inventory at a cost of $1.3 million was sold as described in b.

d. The warehouse 12-month lease expired on October 1, 20X1. However, the company immediately

renewed the lease at a rate of $84,000 for the next 12-month period. The entire rent was

paid in cash in advance.

e. Depreciation expense for 20X1 for the warehouse equipment was $20,000.

f. Collections on accounts receivable, $1.25 million.

g. Wages for 20X1 were paid in full in cash, $200,000.

h. Miscellaneous expenses for 20X1 were paid in full in cash, $70,000.

i. Payments on accounts payable, $900,000.

j. Cash dividends for 20X1 were declared and paid in full in December, $100,000.

Required

1. Prepare an analysis of transactions, employing the balance sheet equation approach demonstrated

in Exhibit 2-3 (p. 49 ) . Show the amounts in thousands of dollars.

2. Prepare an ending balance sheet, a statement of income, and the retained earnings column of

the statement of stockholders equity for 20X1.

3. Reconsider transaction j. Suppose the dividends were declared on December 15, 20X1,

payable on January 31, 20X2, to shareholders of record on January 20. Indicate which

accounts and financial statements in requirement 2 would be changed and by how much. Be

complete and specific.