Question

Dan Watson started a small merchandising business in 2018. 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 $18,000 cash.
(3) Sold inventory costing $15,000 for $32,000 cash.

Prepare an income statement for 2018.

Answer 1

Answer:

The net income for the year is $ 17,000

Explanation:

The first transaction has no impact on the income statement.

The second transaction is recorded as :

Inventory  Debit $ 18,000

Cash         Credit                  $ 18,000

The third transaction is recorded by the following entries

Cash         Debit       $ 32,000

Sales         Credit                         $ 32,000

Cost of Goods sold  Debit   $ 15,000

Inventory                   Credit                 $ 15,000

So the sales - cost of goods sold results in the income for the year