We Like to Rock (WLR), a granite countertop manufacturer, delivered 5 countertops at $2,000 each to their client. The cost of producing the countertops was $500 each. The client paid cash for the countertops. First, how would the revenue from this transaction impact the accounting equation for WLR?

Question

Danny Ortega

Business

7 July, 07:19

We Like to Rock (WLR), a granite countertop manufacturer, delivered 5 countertops at $2,000 each to their client. The cost of producing the countertops was $500 each. The client paid cash for the countertops. First, how would the revenue from this transaction impact the accounting equation for WLR?

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Answers (1)

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Pogo · Answer 1

It increase the stockholders equity by 7,500 which is the gain for the sale of the countertops.

It also increase Assets by 7,500

Explanation:

the accounting equation before the sales had inventory for 500 each

this inventory, the countertops are sold by 2,000 each

each countertop sold generates a revenue for 2,000

and a cost of goods sold associate with the sale for 500

This increase the Equity of the firm WLR by 1,500 for each countertop

In this case the sale is for 5 countertops

so it will be: 1,500 x 5 = 7,500

This will be an explanation with numbers:

Assets = Liability + Equity

Inventory Common stock

5 x 500=2,500 = 2,500

After the sale:

Assets = Liabily + Equity

Cash (CS + Revenue - COGS)

5 x 2,000 = 10,000 = 0 + 2,500 10,000 (2,500)

10,000 = 0 + 10,000

Resuming:

It increase the stockholders equity by 7,500 which is the gain for the sale of the countertops. And assets for the same amount