1E - Intermediate Accounting (Kieso)

Question

Presented below are changes in all the account balances of Fritz Mayhew Furniture Co. during the current year, except for retained earnings. 

                                                       Increase                                                      Increase                                                                            

                                                      (Decrease)                                                 (Decrease)                                                                                                                       

 Cash                                          \(79,000                  Accounts Payable                  

Accounts Receivable (net)       \)45,000                  Bonds Payable              \(82,000         

Inventory                                    \)127,000                 Common Stock            \(125,000             

Investments                               (47,000)   Paid-In Capital in Excess of Par \)13,000

Instructions

Compute the net income for the current year, assuming that there were no entries in the Retained Earnings account except for net income and a dividend declaration of $19,000 which was paid in the current year.  

Step-by-Step Solution

Answer

The Net Income of Fritz Mayhew Furniture Co. for the current year is $54,000.

Meaning of Inventory

Inventory refers to the goods used for production during the regular course of business. Raw materials, work-in-progress, and finished goods are the general categories of inventory.

Calculation of Net Income

Particulars	Amount ($)
Increase in Cash	$79,000
Add: Decrease in Accounts Payable	$51,000
Add: Increase in Accounts Receivables	$45,000
Less: Increase in Bonds Payable	($82,000)
Add: Increase in Inventory	$127,000
Less: Increase in Common Stock	($125,000)
Less: Decrease in investments	($47,000)
Less: Increase in paid-in-capital	($13,000)
Add: Dividend Declared	$19,000
Net Income	$54,000