Phil Potter worked in the Valley Hills State Bank for 20 years, until his aunt died, leaving him a sizable estate. After sitting around long enough to get bored and see his bank balance dwindle, Phil decided to open a retail paint store. When he started the business on July 1, 1990, Valley Hills had no such store, and it appeared to Phil that the business would succeed.

On July 1, Phil deposited \(\$ 53,500\) in a bank account under the name Phil's Paints. He then paid \(\$ 12,000\) cash for store equipment, which he expected to last 10 years before it became valueless. He also bought merchandise for \(\$ 37,500\) cash, and paid \(\$ 3,600\) in advance for six months' store rent.

Phil estimated that most paint stores marked their goods for sale at prices averaging \(35 \%\) above cost. In other words, an item that cost \(\$ 10.00\) was marked for sale at \(\$ 13.50\). But to entice customers, he decided to mark his merchandise for sale at \(30 \%\) above cost. Since his overhead would be low, he thought this would still leave a net income equal to \(10 \%\) of sales.

On December 31, 1990, six months after opening his store, Phil has come to you for advice. He thinks business has been good. However, he doesn't quite understand why his cash balance has fallen to \(\$ 1,200\).

In talking with Phil and examining his records, you determine that the inventory was replaced three times during the six months, each time at a cost of \(\$ 37,500\). All merchandise suppliers have been paid except for \(\$ 10,850\), which is not yet due. A full stock of merchandise (cost of \(\$ 37,500\) ) is on hand and customers owe Phil \(\$ 29,100\). In addition to the rent paid in advance, Phil paid \(\$ 14,700\) for other expenses.

Prepare an income statement for the business covering the six-month period ended December 31, a statement of changes in owner's equity, a December 31, 1990, balance sheet, and a statement that explains the \(\$ 1,200\) cash balance by showing the cash receipts and cash disbursements during the six months ended December 31 .