Hernandez Company Began Business Operations and Experienced the Following Transactions

question 21

Essay

Hernandez Company began business operations and experienced the following transactions during Year 1, its first year of operations:1)Issued common stock for $50,000 cash.2)Provided services to customers for $125,000 on account.3)Purchased $2,500 of supplies on account.4)Paid $30,000 cash to rent office space for a 12-month period beginning July 1.5)Collected $115,000 cash from customers.6)Paid cash for $90,000 of operating expenses.7)Adjusted the accounting records to reflect that there was $750 of supplies remaining on hand at year-end.8)Recorded a year-end adjustment to recognize rent expense.Required:a)Record the above transactions on a horizontal statements model, reflecting their effect on the different financial statements.b)Prepare Hernandez Company's income statement, balance sheet and statement of cash flows for the year ended December 31, Year 1.

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Definitions:

Marginal Rate

Often refers to the marginal rate of substitution or marginal rate of transformation in economics, indicating the rate at which one good can be substituted for another.

Transformation

The process of converting inputs into outputs, often relating to the change of raw materials into finished products in the context of production.

Opportunity Cost

The rejection of potential benefits from alternative propositions when favoring one.

Comparative Advantage

The ability of an individual or entity to produce goods or services at a lower opportunity cost than other individuals or entities.