On January |, 2000, Paula Randolph opened a boutique called PR’s Boutique. At that time she deposited $30,000 cash in the company’s checking account. Paula then immediately wrote company checks to purchase $7,000 of inventory and $16,000 of store equipment, and to pay two years’ rent in advance for store space. Paula estimated that the store equipment would last ten years and would then be worthless. During the year, the boutique appeared to operate successfully. Paula did not know anything about accounting,

although she did keep an accurate company checkbook. The company checkbook showed the following summarized items on December 31, 2000:
Payment for store equipment $16,000 Payment for two years’ rent of store space 2,400 Payments for purchases of inventory* 23,000 Receipts from cash sales 38,000 Payments for operating expenses 12,000 Withdrawals of cash for personal use 11,000 “Including $7,000 beginning inventory On December 31, 2000, Paula asks for your assistance. She says: “The ending cash balance in the company checkbook is $3,600. Since my initial investment was $30,000, the company seems to have had a net loss of $26,400. Something must be wrong. | am sure the company did better than that. Please find out what the company’s earnings were for 2000, why the cash went down so much during 2000, and what its financial position is at the end of 2000. Also, for what the company sold in 2000, how does its profit percentage compare with its operating cash intake percentage?”
You agree to help Paula. She tells you that the company used a periodic inventory system during 2000, that she has just finished “taking inventory,’ and that the cost of the 2000 ending inventory is $9,000. She has kept copies of invoices made out to customers who purchased merchandise on credit. These uncollected invoices total $12,000. Paula also has a file of unpaid invoices from suppliers for purchases of inventory. These unpaid invoices add up to $8,000. Just as you begin your calculations, Paula says:“Oh yes, $10,000 of the payments for operating expenses were employees’ salaries. | also owe my employees $700 of salaries that they have earned this week.”
Required: (1) Prepare a 2000 income statement, a 2000 cash flow statement, and a December 31, 2000 balance sheet for PR’s Boutique. Include explanations:
for all amounts shown.
(2) Answer Paula’s question about the comparison of the “profit percentage”
with the “operating cash intake percentage.”  plo47