Preparing income statement and balance sheet using accrual basis. Bob Hansen opens a retail store on January 1, Year 8. Hansen invests \(\$ 50,000\) for all of the common stock of the firm. The store borrows \(\$ 40,000\) from a local bank. The store must repay the loan with interest for both Year 8 and Year 9 on December 31, Year 9. The

interest rate is 10 percent per year. The store purchases a building for \(\$ 60,000\) cash for use as a retail store. The building has a 30 -year life, zero estimated salvage value, and is to be depreciated using the straight-line method.
The store purchases \(\$ 125,000\) of merchandise on account during Year 8 and pays \(\$ 97,400\) of the amount by the end of Year 8. A physical inventory taken on December 31 , Year 8 indicates \(\$ 15,400\) of merchandise is still on hand.
During Year 8, the store makes cash sales to customers totaling \(\$ 52,900\) and sales on account totaling \(\$ 116,100\). Of the sales on account, the store collects \(\$ 54,800\) by December 31, Year 8.
The store incurs and pays other costs as follows: salaries, \(\$ 34,200\); utilities, \(\$ 2,600\). It has unpaid bills at the end of Year 8 as follows: salaries, \(\$ 2,400\); utilities, \(\$ 180\). The firm is subject to an income tax rate of 40 percent. Income taxes for Year 8 are payable on March 15, Year 9.

a. Prepare an income statement for Hansen Retail Store for Year 8, assuming that the retail store uses the accrual basis of accounting and recognizes revenue at the time of sale. Show supporting computations for each revenue and expense.

b. Prepare a balance sheet for Hansen Retail Store as of December 31, Year 8. Show supporting computations for each balance sheet item.