Stephen Bedford made custom T-shirts for himself and his friends for years before trying to treat it seriously as a business. On January 1, 20X1, he decided to become more serious. He bought some screening equipment for $5,000. Depreciation of the screening equipment for the month of January is $750. He acquired 2,000 shirts for $6,000 and rented a studio for $500 per month. During the month, he paid an assistant $1,600 and together they created three designs, screened 1,500 shirts, and sold 1,200 at $10 each. At month-end, there were 500 shirts unused, 300 finished shirts ready for sale, and Sam was trying to figure out how he was doing.

1. Calculate the cost of goods sold and the value of ending inventory (including raw material and finished goods).

2. Prepare an income statement for Stephen’s first month of operations. Assume a 40% tax rate.