Stocken Surf Shop began operations on July 1 with an initial investment of \(\$ 50,000\). During the first three 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, customers owed the store \(\$ 9,000\).

2. Rent was paid on July 1 for six months.
3. Salaries of \(\$ 4,000\) per month were paid on the 1 st of each month for salaries earned in the month prior.
4. Inventories were purchased for cash; at September 30, inventory of \(\$ 28,000\) was still available.
5. Fixtures and equipment were expected to last five years (or 60 months) with zero salvage value.
6. The bank charges \(12 \%\) annual interest (1\% per month) on the \(\$ 10,000\) bank loan. Stocken took the loan out July 1.
\section*{Required}

a. Record all of Stocken's cash transactions and prepare any necessary adjusting entries at September 30. You may either use the financial statement effects template or journal entries combined with T-accounts.

b. Prepare the income statement for the three months ended September 30, and the balance sheet at September 30 .

c. Analyze the statements from part \(b\) and assess the company's performance over its initial three months.

Transcribed Image Text:

Deposits Initial investment by owner Collected from customers... Borrowings from bank..... Checks drawn Rent...... Fixtures and equipment.... Merchandise inventory..... Salaries ..... Other expenses $50,000 81,000 10,000 $141,000 $ 24,000 25,000 62,000 8,000 13,000 $132,000