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 children’s 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.

Gecko Toy Company

1. Analysis of Transactions, using the balance sheet equation approach:

a. Inventory $1 million Accounts Payable $1 million

b. Accounts Receivable $1.5 million Cash, $200,000 Equity: Sales Revenue  $1.7 million

c. Inventory ($1.3 million) Equity: Cost of goods sold ($1.3 million)

d. Cash ($84,000) Prepaid Rent $63,000 Equity: Rent Expenses $66,000  

e. Equipment (Acc. Depreciation) ($20,000) Equity: Depreciation Expense ($20,000)

f. Cash $1.25 million Accounts Receivable ($1.25 million)

g. Cash ($200,000) Equity: Wages Expense ($200,000)

h. Cash, ($70,000) Equity: Miscellaneous expenses ($70,000)

i. Cash ($900,000) Accounts Payable ($900,000)

j. Cash ($100,000) Equity: Dividends ($100,000)

2. Statement of Income:

Sales Revenue                       $1.7 million

Cost of goods sold              ($1.3 million)

Gross profit                          $0.4 million

Rent Expenses                      ($66,000)

Depreciation Expense          ($20,000)

Wages Expense                 ($200,000)

Miscellaneous expenses     ($70,000)

Total expenses                   $0.356 million

Net income                         $0.044 million

Statement of retained earnings:

Retained earnings               645,000

Net income                            44,000

Dividends                           (100,000)

Retained earnings             589,000

Gecko Toy Company

Balance Sheet, December 31, 20X1

Assets                                                Liabilities and Stockholders’ Equity

                                                          Liabilities

Cash                             $ 496,000   Accounts payable             $ 900,000

Accounts receivable      650,000    Stockholders’ equity

Merchandise inventory 560,000     Paid-in capital                    $360,000

Prepaid rent                     63,000     Retained earnings               589,000

Equipment                       80,000     Total stockholders’ equity   949,000

Total                          $1,849,000     Total                                 $1,849,000

3.  Accounts and Financial Statements that would change:

Assets (Cash) will increase by $100,000 (Balance sheet)

Liabilities (Dividends Payable) will increase by $100,000 (Balance sheet)

Explanation:

a) Data and Calculations:

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

Analysis of Transactions, using the balance sheet equation approach:

a. Inventory $1 million Accounts Payable $1 million

b. Accounts Receivable $1.5 million Cash, $200,000 Equity: Sales Revenue  $1.7 million

c. Inventory ($1.3 million) Equity: Cost of goods sold ($1.3 million)

d. Cash ($84,000) Prepaid Rent $63,000 Equity: Rent Expenses $66,000  

e. Equipment (Acc. Depreciation) ($20,000) Equity: Depreciation Expense ($20,000)

f. Cash $1.25 million Accounts Receivable ($1.25 million)

g. Cash ($200,000) Equity: Wages Expense ($200,000)

h. Cash, ($70,000) Equity: Miscellaneous expenses ($70,000)

i. Cash ($900,000) Accounts Payable ($900,000)

j. Cash ($100,000) Equity: Dividends ($100,000)

Prepaid Rent

Account Title          Debit     Credit

Balance              $45,000

Cash                     84,000

Rent expense                      $66,000

Balance                                  63,000

the answer would be voluntary exchange -

"the act of buyers and sellers freely and willingly engaging in market transactions. moreover, transactions are made in such a way that both the buyer and the seller are better off after the exchange than before it occurred."

hope this : )

-shy