EXERCISE 1 Instructions Complete the following two steps: 1. Take the Widgets, Inc. First Year Transactions information below and add it to the Accounting Transactions Worksheet (on the following page) to make the entries for Widgets Inc. first year in business using the accrual basis of accounting 2. Explain your entries and how they affected the balance sheet and income state- ment Widgets, Inc. First Year Transactions A. Mr. Jones starts Widgets, Inc. by issuing shares of capital stock for $7,500 on Janu- ary 1, 20xx. The business elects to use the accrual basis of accounting. B. Widgets, Inc. purchases equipment costing $6,000. A cash down payment of $2,000 is made upon delivery of the equipment, and a note for $4,000 was signed for the remaining balance of the purchase price. No interest accrues and payments do not start until January 1, 20xy. C. Widgets, Inc. purchases merchandise for resale, all on account, for $30,000 during the year. D. Widgets Etc. sells merchandise costing $26,000 for $42,000. All sales are on ac- count. E. Widgets, Inc. collects $33,000 of cash on accounts (from customers) during the year. F. Widgets, Inc. disburses cash of $25,000 to creditors (on account) during the year. G. Widgets, Inc. disburses cash of $9,400 for miscellaneous operating expenses during the year. H. Widgets, Inc. recognizes depreciation expense for the year of $2,600. I. Widgets, Inc. declares and pays $1,200 of dividends during the year. Widgets, Inc. Accounting Transactions Worksheet WIDGETS, INC. T-ACCOUNTS WORKSHEET ACCRUAL BASIS INCOME STATEMENT ASSETS BALANCE SHEET LIABILITIES Beginning Bal. Beginning Bal. Transactions: Ending Balance Transactions: Cumulative Total Transactions: Cumulative Total Ending Balance Beginning Bal. Transactions: Ending Balance Beginning Bal. Transactions: Ending Balance Total Liabilities Transactions: Cumulative Total OWNER'S EQUITY Beginning Bal. Transactions: Ending Balance Beginning Bal. Transactions: Ending Balance Transactions: Cumulative Total Transactions: Cumulative Total Beginning Bal. Transactions: Ending Balance Beginning Bal. Transactions: Ending Balance Owner's Equity Total Assets Net Income Total Liabs. & Owner's E