The Bekele Company was incorporated on April 1, 20X0. Bekele had 10 holders of common stock. Rosa Bekele, the president and chief executive officer, held 51% of the shares. The company rented space in chain discount stores and specialized in selling ladies’ accessories. Bekele’s first location was in a store that was part of The Old Market in Omaha. The following events occurred during April:
a. The company was incorporated. Common stockholders invested $200,000 cash.
b. Purchased merchandise inventory for cash, $45,000.
c. Purchased merchandise inventory on open account, $35,000.
d. Merchandise carried in inventory at a cost of $37,000 was sold for cash for $25,000 and on open account for $75,000, for a grand total of $100,000. Bekele (not The Old Market) carries and collects these accounts receivable.
e. Collection of accounts receivable, $18,000. See transaction (d).
f. Payments of accounts payable, $30,000. See transaction (c).
g. Special display equipment and fixtures were acquired on April 1 for $36,000. Their expected useful life was 36 months. This equipment was removable. Bekele paid $12,000 as a down payment and signed a promissory note for $24,000. Also see transaction (k).
h. On April 1, Bekele signed a rental agreement with The Old Market. The agreement called for a flat $2,000 per month, payable quarterly in advance. Therefore, Bekele paid $6,000 cash on April1.
i. The rental agreement also called for a payment of 10% of all sales. This payment was in addition to the flat $2,000 per month. In this way, The Old Market would share in any success of the venture and be compensated for general services such as cleaning and utilities. This payment was to be made in cash on the last day of each month as soon as the sales for the month had been tabulated. Therefore, Bekele made the payment on April 30.
j. Employee wages and sales commissions were all paid for in cash. The amount was $34,000.
k. Depreciation expense of $1,000 was recognized ($36,000, 36 months). See transaction (g).
l. The expiration of an appropriate amount of prepaid rental services was recognized. See transaction (h).
1. Prepare an analysis of Bekele Company’s transactions, employing the balance sheet equation approach demonstrated in Exhibit. Show all amounts in thousands.
2. Prepare a balance sheet as of April 30, 20X0, and an income statement for the month of April. Ignore income taxes.
3. Given these sparse facts, analyze Bekele’s performance for April and its financial position as of April 30, 20X0.