On March 31, 2015, Cars, Inc. owes Preston Devices, one of its suppliers, $25,000 for previous purchases. During April 2015, Pre

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On March 31, 2015, Cars, Inc. owes Preston Devices, one of its suppliers, $25,000 for previous purchases. During April 2015, Pre

ston sells Cars devices with a sales price of $10,000 and a cost to Preston of $8,000. During April, Cars pays Preston $12,000 against the amount owed to Preston. What is the effect of these April transactions on Preston's balance sheet?

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1 answer:

Free_Kalibri [3.7K] · Answer 1 · 2026-03-10T17:40:05+03:00

Answer:

As of March 31, there's a debt of $25,000

In April, $10,000 worth of merchandise is sold to Cars Inc. (with a COGS of $8,000)

Cars made a payment of $12,000 to Preston to reduce its accounts payable

On March 31, Preston reported accounts receivable at $25,000.

By April 30, accounts receivable decreased to $23,000, cash increased by $12,000, and retained earnings are expected to rise by $2,000.

The income statement will reflect a sales revenue increase of $10,000 minus $8,000 COGS, resulting in a $2,000 profit, thus contributing to retained earnings.