Exercise $3-3$A $($Algo$)$ Effect of inventory transactions on financial statements: Perpetual system LO $3-1$

Dan Watson started a small merchandising business in Year $1.$ The business experienced the following events during its first year of

operation. Assume that Watson uses the perpetual inventory system.

Acquired $$30,500$ cash from the issue of common stock.

Purchased inventory for $$24,400$ cash.

Sold inventory costing $$15,300$ for $$29,000$ cash.

Required:

a$.$ Use a horizontal financial statements model to show how each event affects the balance sheet, income statement, and statement of

cash flows. More specifically, record the amounts of the events into the model. Also, in the Statement of Cash Flows column, classify

the cash flows as operating activities $($OA$),$ investing activities $($IA$),$ or financing activities $($FA$).$

b$.$ Prepare an income statement for Year $1($use the multistep format$).$