Mia Sales experienced the following events during 2011, its first year of operation:

1. Started the business when it acquired \(\$ 50,000\) cash from the issue of common stock.

2. Paid \(\$ 21,000\) cash to purchase inventory.

3. Sold inventory costing \(\$ 12,500\) for \(\$ 26,500\) cash.

4. Physically counted inventory showing \(\$ 7,900\) inventory was on hand at the end of the accounting period.

Required

a. Open appropriate ledger T-accounts, and record the events in the accounts.

b. Prepare an income statement and balance sheet for 2011.

c. Explain how differences between the book balance and the physical count of inventory could arise. Why is being able to determine whether differences exist useful to management?