Background: Your friend runs a very simple business and asks you to prepare formal financial statements at the end of the year and give him a brief analysis. No journal entries were recorded during the year.

1. The following occurred in 2014.

Jan 1: $200,000 of stock is issued.

Jan 2: $18,000 paid for Jan-Jun building lease.

Jan 10: $17,000 of supplies are purchased for cash.

Jan 12: $10,600 of inventory purchased on account.

Jan 13 Purchased $50,000 of equipment for $20,000 cash and a $30,000 note. The equipment has

a 10 year useful life and the interest on the loan is 10%.

Dec 31a: Cash sales for the year of $500,000 and credit sales of $150,000 during the year. The inventory sold valued at $350,000.

Dec 31b: Paid $5,000 for consulting expense during the year.

Dec 31c: Paid $10,000 for advertising expense during the year

Dec 31d: Paid $150,000 for salaries expense during the year

Dec 31e: Paid $11,000 for utilities expense.

Dec 31f: $1,200 of supplies are leftover at the end of the year.

Dec 31g: During the year the company purchased an additional $400,000 of inventory on account.

Dec 31h: During the year the company paid its vendors $370,000 for inventory bought on account.

Dec 31i: Takes physical inventory at the end of the year, total value $60,000.

Dec 31j: Records depreciation expense for the year

Dec 31k: Pays interest on the loan for the year

Dec 31l: Paid $3,000 per month rent July to December and recorded Jan-Jun rent expense

Dec 31m: Records $1,000 December utility bill not yet paid

Dec 31n: Customers paid $100,000 during the year

Dec 31o: The company is in a 10% tax bracket and will pay the income taxes later.

Dec 31p: Stockholders are paid $3,000 for dividends.

2. Prepare the 4 financial statements for 2014.

3. The following information is available about 2015:

Jan 6: Paid utility from 2014.

Jan 8: Paid the income tax payable from 2014.

Dec 31a: Cash sales w$650,000, and credit sales $200,000 for the year. Inventory value $425,000

Dec 31b: Paid $5,550 for consulting expense for the year.

Dec 31c: Paid $15,000 for advertising expense.

Dec 31d: Paid $170,000 for salaries expense.

Dec 31e: Paid $14,000 for utilities expense.

Dec 31f: Customers paid us $190,000 in accounts receivable due during the year.

Dec 31g: Bought additional inventory for $400,000 on account during the year.

Dec 31h: Paid vendors $430,000 during the year for inventory bought on account.

Dec 31i: Purchased $10,000 supplies during the year.

Dec 31j: Supplies inventory was $2,000 at end of the year

Dec 31k: The company takes inventory at the end of the year, and notes value of $30,000.

Dec 31l: Pays off the loan, including interest due for the year

Dec 31m: Records depreciation expense for the year

Dec 31n: Paid $3,000 per month rent during the year

Dec 31o: Purchase bonds of XYZ company $200,000 long-term investment

Dec 31p: The company is in a 10% tax bracket and will pay the income taxes later.

4. Prepare the 4 financial statements for 2015.

(Balance Sheet in classified format and Income Statement multi-step)

5. Prepare comparative income statement with vertical and horizontal (also known as variance) analysis

6. Calculate the following ratios for 2015 ONLY, AND discuss.

Current ratio, Debt ratio, Average collection period, Days sales in inventory, Asset Turnover