(All of the knowledge required to solve this problem is not contained in this chapter. The problem is based on material covered in financial accounting and is included here to prompt thinking about accounting problems, accounting processes, and decisions.) Van Gogh is considering a business opportunity selling artificial flowers, especially irises and lilies. He needs \(\$ 25,000\) in financing to begin operations. He has \(\$ 15,000\) in savings that he can invest. He has spoken with a local bank about borrowing the additional \(\$ 10,000\) he needs. The bank has indicated that it will consider the loan but has asked for a set of financial statements that describes what Van believes the company's financial condition will look like at the end of the first three months of operations. Van has asked for your assistance in preparing the financial statements. He has provided you with the following expectations:

1. Plant assets costing \(\$ 22,500\) will be needed.

2. Inventory of \(\$ 5,000\) will be purchased for the first month. The inventory will be paid for in the month following purchase. The amount of inventory purchased each month will equal the amount sold in the prior month.

3. Average monthly sales should be about \(\$ 7,500\). Two-thirds of the sales will be for cash each month, and one-third will be for credit. Credit sales will be collected in the month following sale.

4. The cost of the inventory sold will be \(\$ 4,000\) each month.

5. The interest on the loan will require a payment of \(\$ 125\) at the end of each month. An additional \(\$ 100\) will be paid to the bank each month to repay the loan.

6. Operating expenses, other than depreciation, each month should be \(\$ 1,000\). These will be paid in cash. Depreciation should be \(\$ 200\) each month.

7. Van expects to withdraw \(\$ 1,000\) from the business each month for living expenses.

In addition, he has provided the following work sheet, completed for the first month of operations:

Required Complete the work sheet for the second and third months.

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Sales revenues First Second Third Month Month Month $ 7,500 (4,000) 3,500 Cost of goods sold Gross profit Depreciation Other operating expenses Income from operations Interest expense Net income Cash (200) (1,000) 2,300 (125) $ 2,175 $ 5,275 Accounts receivable Inventory 2.500 1.000 Plant assets, net of depreciation 22,300 Total assets $31,075 Accounts payable $ 5,000 Notes payable 9.900 Investment by owner 15,000 Retained earnings 1,175 Total liabilities & owners' equity $31,075