Preparing the income statement and balance sheet using the accrual basis Bob Hansen opens a retail store on January 1, 2008. Hansen invests $50,000 for all of the common stock of the firm. The store borrows $40,000 from a local bank. The store must repay the loan with interest for both 2008 and 2009 on December 31, 2009. The interest rate 10% per year. The store purchases a building for $60,000 cash. The building has a 30-year life, zero estimated salvage ‘value, and is to be depreciated using the straight-line method. The store purchases $125,000 of merchandise on account during 2008 and pays $97,400 of the amount by the end of 2008. A physical inventory taken On December 31, 2008, indicates $15,400 of merchandise is still on hand. During 2008, the store makes cash sales to customers totaling $52,900 and sales on account totaling $116,100. Of the sales on account, the store collects $54,800 by December 31, 2008. The store incurs and pays other costs as follows: salaries, $34,200; utilities, $2,600. It has unpaid bills at the end of 2008 as follows: salaries, $2,400; utilities, $180. The firm is subject to an income tai rate of 40%. Income taxes for 2008 are payable on March 15, 2009. Assume that Hansen applies U.S. GAAP, and reports in U.S. dollars.
a. Prepare an income statement for Hansen Retail Store for 2008, assuming the accrual basis of accounting and revenue recognition at the time of sale. Show supporting computations for each revenue and expense.
b. Prepare a balance sheet for Hansen Retail Store as of December 31, 2008 Show supporting computations for each balance sheet item.