Exercise 9-8A Current Liabilities

The following transactions apply to Ozark Sales for Year 1:

1. The business was started when the company received $50,000 from the issue of common stock.
2. Purchased equipment inventory of $380,000 on account.
3. Sold equipment for $510,000 cash (not including sales tax). Sales tax of 8 percent is collected when the merchandise is sold. The merchandise had a cost of $330,000.
4. Provided a six-month warranty on the equipment sold. Based on industry estimates, the warranty claims would amount to 2 percent of sales.
5. Paid the sales tax to the state agency on $400,000 of the sales.
6. On September 1, Year 1, borrowed $50,000 from the local bank. The note had a 4 percent interest rate and matured on March 1, Year 2.
7. Paid $6,200 for warranty repairs during the year.
8. Paid operating expenses of $78,000 for the year.
9. Paid $250,000 of accounts payable.
10. Recorded accrued interest on the note issued in transaction no. 6.

Required

a. Show the effect of these transactions on the financial statements using a horizontal statements model like the one shown next. Use + for increase, − for decrease, and NA for not affected. In the Cash Flow column, indicate whether the item is an operating activity (OA), investing activity (IA), or financing activity (FA). The first transaction is recorded as an example.

b. Prepare the journal entries for the preceding transactions and post them to the appropriate T-accounts.

c. Prepare the income statement, balance sheet, and statement of cash flows for Year 1.

d. What is the total amount of current liabilities at December 31, Year 1?

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Aug 27, 2025