Tony began a small retailing operation on January 1, 2015. During 2015, the following transactions occurred:
1. Tony contributed $20,000 of his own money to the business.
2. $60,000 was borrowed from the bank.
3. Long-lived assets were purchased for $25,000 cash.
4. Inventory was purchased: $25,000 cash and $15,000 on account.
5. Inventory with a cost of $25,000 was sold for $80,000: $20,000 cash and $60,000 on account.
6. Cash payments included $18,000 for operating expenses, $5,000 for loan principal, and a $2,000 dividend.
7. $15,000 in expenses were accrued at the end of the year.
a. Prepare journal entries for each economic event.
b. Prepare a balance sheet as of the end of 2015 and an income statement and reconciliation of retained earnings for 2015 for Tony’s business.
c. Prepare a cash T-account and a statement of cash flows using the direct method.
d. Prepare a statement of cash flows using the indirect method, but this time prepare it from the company’s two balance sheets, the income statement, and the reconciliation of retained earnings. Tony’s first balance sheet contains all zero balances.

  • CreatedAugust 19, 2014
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