Problem $7-1$

$15$ points

The following transactions apply to Freestyle Corp. for $2024$:

The business was started when Freestyle Corp. received

$$520,000$ from the issue of common stock.

Purchased $$1,520,000$ of merchandise on account.

Sold merchandise for $$1,920,000$ cash $($not including sales tax$).$ Sales tax of

is collected when the merchandise is sold. The merchandise had a cost of

$$1,160,{000}^{7\%}$

Good idea to split this into two accounting entries $-$ think chapter $3.$ Hint : $3$a and $3$b

Provided a six$-$month warranty on the merchandise sold. Based on industry estimates, the

warranty payable claims would amount to

$2\%$

of merchandise sales excluding sales tax. Think of it as a contingent liability

Paid the sales tax of

$7\%$ to the state agency on

$$1,280,000$ of the sales, $($not the entire amount$)$

On September $1,2024,$ borrowed

$$200,000$ from the local bank. The note had a

annual interest rate and matures on August $31,2025.$

REQUIRED

a$.$ Record the above transactions in a horizontal statements model.

Students will have to rename asset accounts in the model to accommodate the $5$ liability accounts in problem.

b$.$ Prepare the income statement, balance sheet, and statement of cash flows for $2024.$

c$.$ What is the total amount of current liabilities at December $31,2024?$