Understanding how accounts relate to each other: The managers of Moreton, Inc

Understanding how accounts relate to each other:

The managers of Moreton, Inc. prepared the following summaries of their company's assets and liabilities (amounts are in € millions):

31/12/x2 31/12/x1

Current assets:

Cash 140 20

A/R 50 70

Inventories 118 93

Noncurrent assets:

Equipment, net 260 300

Total assets 568 483

Liabilities:

Accounts payable 101 80

Owners' Equity:

Share capital 250 250

Retained profits 217 153

Total liabilities & OE 568 483

An analysis of the company's cash account for x2 shows three main transactions (amounts also in € millions): (1) amount received from customers: 500; (2) amount paid to suppliers for merchandise: 330; (3) amount of dividends declared and paid: 50. All sales and purchases are on credit. (Hint: Use T-accounts)

1. Compute sales revenues in x2:

20

450

480

520

2.  Compute the purchases of inventoriesin x2:

21

309

310

351

3.  Compute cost of goods sold in x2:

129

301

326

376

4. Compute the profit or loss for Moreton Inc. in x2:

114

66

34

84