Review 2.

1 Vivaldi Company (1)

Topic: Transactions and the business equation

Level of difficulty: Low

Vivaldi Company is a retailer. During the year X1 it carried out the following transactions
(all expressed in CU, except where clearly marked):

(A) Creation of the business and provision by shareholders of tangible assets in the
amount of 40 and of cash for 60 CU.

(B) Purchase of merchandise for resale: 40 (on account).

(C) Advertising expense: seven (on account).

(D) Sale of merchandise to customers (on account): 120 CU. The purchase price of the
merchandise that was sold is 30 CU.

(E) Personnel expenses for the period: salaries 30, social charges and fringe benefits 15
(the latter will be paid out in cash during the next period).

(F) Miscellaneous business taxes: 20 (will be paid cash during the next period).

(G) Cash received from customers (who had bought on account): 60 CU.

(H) Payment to the merchandise suppliers: 35.

(I) Payment of salaries: 30.

(J) The assets brought as a capital contribution when the business was created are
expected to have a useful life of ten years. The loss of value of the asset is expected to be
the same each year for ten years.

(K) The purchase value of the merchandise on hand at the end of the year (ending
inventory) is ten.

Required

1 Show the impact of each event on the basic business equation (recording the purchase
of merchandise in expenses).

2 Prepare the year-end balance sheet reflecting the events listed in A to K above.

3 Prepare the income statement for the period reflecting the events listed in A to K above.