Dan Watson started a small merchandising business in Year 1. 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 $24,000 cash.

3. Sold inventory costing $15,900 for $29,500 cash.

Required

1. Record the events in a horizontal statement model. In the Cash Flow column, use OA to designate operating activity, IA for investment activity, FA for financing activity, or NC for net change in cash. If the element is not affected by the event, leave the cell blank.
2. Prepare an income statement for Year 1 (use the multistep format).
3. What is the amount of total assets at the end of the period?

• Required A

Record the events in a horizontal statement model. In the Cash Flow column, use OA to designate operating activity, IA for investment activity, FA for financing activity, or NC for net change in cash. If the element is not affected by the event, leave the cell blank. (Not every cell will require entry. Enter any decreases to account balances and cash outflows with a minus sign.)

DAN WATSON MERCHANDISING

Effect of Events on Financial Statements

Event

Assets

=

Stockholders Equity

Revenue

Expenses

=

Net Income

Statement of Cash Flows

Cash

+

Inventory

=

Common Stock

+

Retained Earnings

1.

+

=

+

=

2.

+

=

+

=

3a.

+

=

+

=

3b.

+

=

+

=

Total

0

+

0

=

0

+

0

0

0

=

0

0

• Required B

Prepare an income statement for Year 1 (use the multistep format).

DAN WATSON MERCHANDISING
Income Statement
For the Year Ended December 31, Year 1
	0
Operating expenses
	$0

• Required C

What is the amount of total assets at the end of the period?

Total assets