The following information is available for two different types of businesses for the 2011 accounting period. Eady CPAs is a service business that provides accounting services to small businesses. Campus Clothing is a merchandising business that sells sports clothing to college students.

Data for Eady CPAs
1. Borrowed \(\$ 40,000\) from the bank to start the business.

2. Provided \(\$ 30,000\) of services to customers and collected \(\$ 30,000\) cash.

3. Paid salary expense of \(\$ 20,000\).

Data for Campus Clothing
1. Borrowed \(\$ 40,000\) from the bank to start the business.

2. Purchased \(\$ 25,000\) inventory for cash.

3. Inventory costing \(\$ 16,400\) was sold for \(\$ 30,000\) cash.

4. Paid \(\$ 3,600\) cash for operating expenses.

Required

a. Prepare an income statement, balance sheet, and statement of cash flows for each of the companies.

b. Which of the two businesses would have product costs? Why?

c. Why does Eady CPAs not compute gross margin on its income statement?

d. Compare the assets of both companies. What assets do they have in common? What assets are different? Why?