The Montero Company, a wholesale distributor of furnace and air conditioning equipment, began business on July 1, 20X2. The following summarized transactions occurred during July:
a. Montero’s stockholders contributed $300,000 in cash in exchange for their common stock.
b. On July 1, Montero signed a 1-year lease on a warehouse, paying $48,000 cash in advance for occupancy of 12 months.
c. On July 1, Montero acquired warehouse equipment for $100,000. A cash down payment of $40,000 was made, and a note payable was signed for the balance.
d. On July 1, Montero paid $24,000 cash for a 2-year insurance policy covering fire, casualty, and related risks.
e. Montero acquired assorted merchandise for $35,000 cash.
f. Montero acquired assorted merchandise for $190,000 on open account.
g. Total sales were $205,000, of which $30,000 were for cash.
h. Cost of inventory sold was $155,000.
i. Rent expense was recognized for the month of July.
j. Depreciation expense of $2,000 was recognized for the month.
k. Insurance expense was recognized for the month.
l. Collected $45,000 from credit customers.
m. Disbursed $80,000 to trade creditors.
For simplicity, ignore all other possible expenses.
1. By using the balance sheet equation format demonstrated in Exhibit, prepare an analysis of each transaction. Show all amounts in thousands. What do transactions (h)–(m) illustrate about the theory of assets and expenses? (Use a Prepaid Insurance account, which is not illustrated in Exhibit 2-3.)
2. Prepare an income statement for July on the accrual basis. Ignore income taxes.
3. Prepare a balance sheet for July 31, 20X2.