Yonghong opened Books Galore, Inc., for business on January 1, Year 1. The following financial items summarize the first year of operations. Use these items to prepare the Year 1 multi-step income statement, the Year 1 statement of stockholders’ equity, the December 31, Year 1 classified balance sheet, and the Year 1 statement of cash flows in the space provided.
a. Yonghong and her friend each invested $50,000 in cash (for a total of $100,000) in exchange for shares of common stock in Books Galore, Inc.
b. On January 1, Year 1 purchased new equipment costing $70,000 with a 10-year useful life and no residual value. Paid cash. Straight-line depreciation is used.
c. Rental costs for the year total $48,000. Of that amount, $4,000 remains unpaid at the end of the year, December 31, Year 1.
d. January 1, Year 1, purchased and paid $2,000 for a two-year property insurance policy.
e. January 1, Year 1, purchased a piece of land next to the store for $20,000 in cash. Later in the year, the land was sold to another small business owner for $30,000 in cash.
f. During Year 1, customers purchased $300,000 of books. Of that amount, $250,000 has been collected from customers in cash and the remaining amounts will be collected next year.
g. Inventory purchases totaled $200,000 for the year. All purchases have been paid for, and $18,000 of those purchases remains in inventory at the end of the year.
h. On July 1, Year 1, borrowed $25,000 from a local bank and signed a one-year, 10% note payable. Principal and interest are due on June 30, Year 2.
During Year 1, the company paid shareholders cash dividends totaling $8,000.
j. At the end of the year, adjusting entries were recorded for depreciation expense and interest expense.