a. Set up T-accounts and record the following transactions; key all entries.

(1) Stockholders invest $100,000.

(2) The company buys $12,000 of merchandise on account.

(3) The company buys a building, paying $2,000 cash and assuming a $28,000 mortgage for the remainder of the purchase price of $30,000.

(4) The merchandise (see Transaction 2) is paid for.

(5) Sales of $9,000 are made. Of these sales, $7,000 are for cash and the remainder on account. The cost of the merchandise sold is $6,000.

Wages earned and paid during this period total $1,200.

(6) An amount of $800 is paid to the mortgagee. Of this amount, $560 is interest and the remainder represents a reduction of the principal balance.

(7) Dividends of $400 are paid to stockholders.

b. Prepare a balance sheet as of December 31, 20XX, giving effect to all the foregoing transactions.