Charlie Driver was pleased with the results of 3C Company's operation in year 2005, especially since he only operated on a part-time basis. In fact, he found the catering business to be not only profitable but also an enjoyable challenge. He decided to continue the 3C Company in year 2006, finish his hospitality and marketing education, and search for a suitable restaurant to acquire and operate. Near the end of year 2006, Charlie found an 84-seat restaurant that had been closed for several months. It was the type of facility he had been looking for. After locating the owner, he reached an agreement to lease the restaurant for five years beginning January 2007. The lease set the first-year rental cost at $24,000 and stipulated a 10% yearly rental increase in each of the remaining four years of the five-year lease. In addition, the owner agreed to allow Char- lie to trade in the old equipment and furnishings for whatever he can get for them and to purchase new equipment and furnishings. The equipment and furnishings were traded in on new equipment with a net cost of $171,524 and new furnishings with a net cost of $53,596. The new equipment was estimated to have a 12-year life with a residual value of $6,500. The new furnishings had an estimated 8-year life and a residual value of $2,620. Charlie realized that for tax purposes and other considerations, he should incorporate a new company as "Charlie's Classic Cuisine" Corporation. We will simplify this name to the 4C Company. With the cash he had saved from operating the 3C Company and from the sale of the truck, Charlie purchased $50,000 of 4C Company's $2.00 par value common stock. Charlie used his reputation and good business record over the past two years to obtain a corporate loan from his bank for $200,000. The loan was to be repaid over the next five years in monthly installments of principal and interest. Although Charlie hired a bookkeeper, he has asked you, a friend, to prepare the 4C Company's year-end financial statements and to discuss the results of his first year of operations with him. You agreed to prepare the year-end statements from a year-ending unadjusted trial balance of accounts provided to you.

To make the necessary adjustments, you are given the following information:

Inventory figures in the unadjusted trial are for the beginning of Year 2007. The December 31, 2007, year-end inventories are $5,915 for food and $2,211 for beverages.

Accrued payroll of $2,215 must be recognized as of December 31, 2007.

Depreciationonequipmentandfurnishingsusingthestraight-linemethod must be recognized.

The bank loan principal to be paid in Year 2008 is $38,260.

Using the unadjusted trial and additional information, complete the adjustments and do a income statement and balance sheet in the report format for 4C Company for the year ended December 31, 2007. Use an income tax rate of 22% of operating income (income before tax), which will not be paid until the Year 2008. The unadjusted trial balance is provided on the following page.

4C Company

Unadjusted Trial Balance December 31, 2007

Accounts Debit Credit

Cash $ 36,218

Credit card receivables 13,683

Accounts receivable 3,421

Inventories, food6,128

Inventories, beverages3,207

Prepaid insurance 2,136

Equipment171,524

Furnishings53,596

Accounts payable $8,819

Bank loan payable 163,518

Common stock 50,000

Sales revenue, food operations 458,602

Sales revenue, beverage operations 180,509

Purchases, food (net)181,110

Purchases, beverages (net) 38,307

Salaries and wages expense 221,328

Laundry expense16,609

Kitchen fuel expense 7,007

China and tableware expense12,214

Glassware expense1,605

Contract cleaning expense5,906

Licenses expense 3,205

Misc. operating expenses 4,101

Administrativegeneral expenses15,432

Marketing expenses 6,917

Utilities expense 7,918

Insurance expense 1,895

Rental expense 24,000

Interest expense 23,981

Unadjusted Trial Balance Totals $861,448$861,448