Jay Ryan owns “Jay’s Skate Board Shop,” which he opened on April |, 2000. At that time Jay invested $20,000 cash into the company. With this money, the shop immediately purchased store equipment for $8,000. Jay estimated that this equipment would last ten years and would have no value after that time. The shop also purchased $6,000 of inventory for cash and paid $1,800 for one year of store rent in advance. During the year, the shop was open for business six days a week. Over the nine-month period in 2000, Jay withdrew $1,000 per month for his personal expenses. He used a periodic inventory system, employed one part-time helper, and paid the shop's bills by company check. For most of the year the shop made only cash sales and paid for purchases before the goods were shipped from the shop’s supplier. However, near the end of the year the shop began to sell items on credit to a few “responsible customers.” Jay kept a small notebook of the amounts of these credit sales. They totaled $3,000 at the end of 2000, and none had been collected yet. Because the shop was such a good customer, its suppliers allowed the shop to purchase $4,000 of inventory on credit near the end of 2000. The shop had not yet paid for these purchases at the end of 2000. At the end of 2009, Jay wanted to know how well the shop was doing, so he prepared the following “income statement.”

Income Statement for 2000 Cash receipts:

Cash sales $40,000 Cash payments: :

Salary to part-time help $ 3,200 Cash purchases of inventory 20,000 Rent expense 1,800 Utilities expense 1,300 Withdrawals 9,000 (35,300)

Net Income $ 4,700 Jay did not feel comfortable with this information and came to you, a small-business consultant, for help. He said: “The shop shows net income of $4,700, but there is $16,700 in the company’s checking account, so cash went down by $3,300. | don’t understand. | just

‘took inventory; and it amounts to $5,000 (including the credit purchases), but the shop owes $400 of salary to my employee. | want to know how much the shop earned in 2000, what were its cash flows in 2000, and where the shop stands financially at the end of 2000. | also am interested in the return ratios on my investment in the company over the last nine months. Finally, | need a recommendation about my accounting system.

Please prepare a report for me that answers these questions.”

Required: Prepare for Jay a report that includes an income statement and a cash flow statement for the nine months ended December 31, 2000, and a balance sheet on December 31, 2000 for his shop. Include explanations for all amounts shown, as well as a discussion that answers Jay’s questions and that recommends an accounting system.  plo47