Situation 1 and using the questions as a guide, discuss recommendations (250 words)

Situation 1 The Donahoo Western Furnishings Company was formed on December 31, 2010, with $1,000,000 in equity plus $500,000 in long-term debt. On January 1, 2011, all of the firms capital was held in cash. The following transactions occurred during January 2011.

January 2: Donahoo purchased $1,000,000 worth of furniture for resale. It paid $500,000 in cash and financed the balance using trade credit that required payment in 60 days.

January 3: Donahoo sold $250,000 worth of furniture that it had paid $200,000 to acquire. The entire sale was on credit terms of net 90 days.

January 15: Donahoo purchased more furniture for $200,000. This time, it used trade credit for the entire amount of the purchase, with credit terms of net 60 days.

January 31: Donahoo sold $500,000 worth of furniture, for which it had paid $400,000. The furniture was sold for 10 percent cash down, with the remainder payable in 90 days. In addition, the firm paid a cash dividend of $100,000 to its stockholders and paid off $250,000 of its long-term debt.

Question 1 What did Donahoos balance sheet look like at the outset of the firms life?

Question 2 What did the firms balance sheet look like after each transaction?

Question 3 Ignoring taxes, determine how much income Donahoo earned during January. Prepare an income statement for the month. Recognize an interest expense of 1 percent for the month (12 percent annually) on the $500,000 long-term debt, which has not been paid but is owed.