The owners of a chain of hardware stores are preparing the most recent quarter financial statements. A number of business details are provided, including information to assess accrual accounting net income: sales, cost of sales, operating expenses, interest, depreciation, and taxes. The most recent balance sheet is provided, enabling an assessment of basic accruals (e.g., tax payable). This case may be used as a stand-alone exercise to illustrate the preparation of balance sheets and income statements using transactions and accruals. Excerpt UVA-C-2446 Dec. 16, 2020 General Hardware, Inc. Ginny and Joe Miller opened a small hardware store in 2004, using their own cash savings and borrowing a small sum from Ginny's parents. Nothing gave them more pride than owning and operating a locally owned business, even if it was complicated by the constant pressures placed on them by big-box retailers. But by 2019, business was booming. General Hardware had five locations, and the Millers were considering an even greater expansion in the coming year, perhaps offering their own version of a national franchise model. The drop-off in activity during the first quarter of 2020, however, dampened those plans. The quarter turned out to be a time for retrenchment and planning for a sustained period of contraction. The following is a summary of first quarter activity for the year 2020, along with the final December 31, 2019, balance sheet (see Exhibit1). · Product sales totaled $ 3 million (all customers paid with cash), and the company had paid $ 2.2million for that inventory sold. . . .
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