Seaside Surf Shop began operations on July 1, 2019, with an initial investment of $50,000. During the initial 3 months of operations, the following cash transactions were recorded in the firm's checking account.

Additional information

1. Most sales were for cash; however, the store accepted a limited amount of credit sales; at September 30, 2019, customers owed the store $9,000.

2. Rent was paid on July 1 for six months.

3. Salaries of $3,000 per month are paid on the 1st of each month for salaries earned in the month prior.

4. Inventories are purchased for cash; at September 30, 2019, inventory worth $2I,000 was available.

5. Fixtures and equipment were expected to last five years with zero salvage value.

6. The bank charges 12% annual interest (I% per month) on its bank loan.

REQUIRED:

a. Prepare any necessary adjusting entries at September 30, 2019, (1) using the financial statement effects template, and (2) in journal entry form.

b. Set up T-accounts and post the adjusting entries to them.

c. Prepare its initial three-month income statement for 2019 and its balance sheet at September 30, 2019. (Ignore taxes.)

d. Analyze the statements from part c and assess the company's performance over its initial three months.

Transcribed Image Text:

Cash receipts Cash payments Rent... .. Fixtures and equipment. Merchandise inventory. Initial investment by owner... $ 50,000 81,000 10,000 $ 24,000 25,000 62,000 ...... Collected from customers ... Borrowed from bank 7/1/2019 ... Total cash receipts.. $141,000 Salaries.. 6,000 Other expenses 13,000 Total cash payments.... $130,000