Bubba Tea Shop was incorporated on May 1, 2005.The following transactions occurred during the month:

1.Invested $50,000 cash in the business in exchange for 5,000 shares of common stock.

2.Acquired a store location for $52,000, paying $32,000 in cash and signing a note with the seller for the balance.

3.Paid cash of $1,500 on May 1 for a one-year insurance policy.

4.Advertised the opening of the business, paying $1,600 cash to a local marketing firm.

5.Purchased inventory for $2,500 from supplier, payable in 30 days.

6.Sales for the month totaled $3,600 in cash and $500 on account.

7.Cost of goods sold was $1,500.

8.Paid wages of $650.

9.Paid supplier in full.

10.Rented a portion of the store to a bakery entrepreneur on May 15.The 1-year lease is for $1,500 per month, with two months rent payable in advance.

11.Collected $100 from customers with outstanding balances.

12.Paid $1,500 on the outstanding note to seller, including interest of $350.

Information for adjusting entries for June is as follows:

a.Depreciation on equipment, $575.

b.Recognize revenue from lease with bakery entrepreneur.

c.Recognize expense on insurance policy.

d.Incurred income taxes of $225, payable at the end of the calendar year.

Required:

On the following pages, show your solution to the following problems.

• Analyze and record the above transactions.

• Prepare the following financial statements:(i) Income Statement, (ii) Balance Sheet, and (iii) Statement of Cash Flows using both the Direct and Indirect method.