Assets Amount Liabilities & Equity Amount

Cash $$100,000$ Accounts Payable $$22,000$

Accounts Receivable $35,000$ Notes Payable Short term $65,000$

Supplies $4,000$ Long Term Notes Payable $95,000$

Inventory $40,000$ Common Stock $30,000$

Equipment $200,000$ Additional Paid in Capital Common stock $20,000$

Accumulated Depreciation$-$Equipment $(40,000)$ Retained Earnings $150,000$

Vehicle $60,000$

Accumulated Depreciation$-$Vehicle $(12,000)$

Land $40,000$

Total Assets $$387,000$ Total Liabilities & Equity $$387,000$

Sam Rumor operates a widget shop. The shop specializes in a selection of various widget products. You have been hired as manager. Your duties include maintaining the store$$s financial records. Here above is the post$-$closing trial balance accounts at the end of the previous year. The following transactions occurred during January, of this year.

a$.$ Received cash of $$40,000$ and $$60,000$ for machinery in exchange for common stock.

b$.$ Paid six months$$ rent for the store at $$5,000$ per month $($five months are prepaid$).$

c$.$ Purchased inventory for $$50,000$ on account $(2/10$ and n$/30$ days.$)$

d$.$ Purchased supplies for $$7,700$ on account.

e$.$ Made sales on account for $$98,000$ with the costs of $$49,000$ at $2/10,$ n$/30.$

f$.$ Negotiated and signed a two$-$year $$100,000$ loan at the bank, receiving cash at the time.

g$.$ Used the money from $($f$)$ to purchase several computers for $$7,500$; then used the balance for a vehicle$-$$$35,000$ and equipment$-$$$57,500$ for the shop.

h$.$ Received payment for sales in $($e$)$ within the discount period.

i$.$ Paid expenses: advertising expense of $$8,000$ and salaries of $$18,500.$

j$.$ Made sales for cash totaling $$78,000$ with a costs of $$36,000.$

k$.$ Made a payment on inventory accounts payable balance of $$40,000$ from transaction c above within the discount period.

l$.$ Collected accounts receivable of $$28,000$ from customers after discount period.

m$.$ Business is going well so issued more common stock. Sam purchased par value stock of $$10,000$ for $$20,000$ cash.

n$.$ Record Deprecation: Help$-$all assets have no salvage value. Estimated useful lives: computers$-3$ years; machinery$-7$ years; vehicle$-5$ years; and for the equipment$-15$ years.

o$.$ Received a cash payment for widgets in advance of $$25,000.$ Will deliver it next month.

p$.$ Office supplies on hand at the end of month were $$3,000.$

Hints

$1.$ Follow the accounting cycle

$2.$ Use the existing accounts and open new accounts when needed. See Chapter $2$ for new accounts.

$3.$ When doing ratios$-$show the ratio formula, show the numbers you are using, then make sure you compute $2-4$ ratios and provide an analysis for each ratio.

$4.$ A memo is $6-8$ sentences and do not forget to include your ratios and analysis.

Required

$1.$ Record journal entries for each of the transactions.

$2.$ Prepare a trial balance.

$3.$ Prepare an income statement at the end of the first month of operations ended January $31.$

$4.$ Prepare a statement of retained earnings for the period ended January $31.$

$5.$ Prepare a balance sheet as of January $31.$

$6.$ Write a memo to Sam offering your opinion on the results of operations during the first month of business this year, January $1-31.$

$7.$ After three years in business the following data was computed. Based on this information provide another memo$/$report to Sam on the performance of the shop for the past $3$ years. $($Don$$t forget to include ratios.$)$

Year $202020212022$

Total Assets $$152,500$ $$208,500$ $$227,000$

Total Liabilities $78,50082,00097,000$

Total Equity $74,000126,500130,000$

Sales Revenue $255,000242,500233,500$

Net Income $24,40015,0009,000$