1. Identify each of the following as an asset (A), contra asset (C), liability (L), or equity (E).

cash	Asset
Depreciation	Contra asset
Equipment	asset
inventory	asset
loans	liability

Paid-in capital	Equity
Prepaid insurance	Asset
Retained earnings	Equity
Taxes owed	Liability
Utility deposit	asset

2. In early December, Alice and Bob decided to open the Sample Cafe with $15,000 of their own money and $20,000 borrowed from a friend. They have spent $12,000 on equipment and furniture, and they have purchased $3,000 worth of inventory. Having put down a $2,500 deposit for a location on Main St., they will pay the first months rent when they open their doors on January 1^st. Create a balance sheet showing the financial position of the Sample Cafe as of December 31st .

Liability	amount	Assets	amount
Capital Loan from friend	15000 20000	Cash Equipment and furniture Inventory Deposit for location	17500 12000 3000 2500
	35000		35000

3. The Sample Cafe nearly broke even in the first month of business. Below is a summary of revenue and expenses for January. Starting with the balance sheet from December 31st, use the results to create an updated balance sheet for January 31st.

Liabilities	amount	Assets	amount
Capital 15000 Net income (700) ** Loan from friend	14300 20000	Equipment & furniture 12000 Depreciation (200) Closing inventory Deposit for location Cash	11800 800 2500 19200
	34300		34300

Cash balance : opening + revenue purchase expense = 17500+30000-1300*-27000=19200

Cost of goods sold = opening + purchases closing inventory => 3500 = 3000 + purchase 800

Purchases = 1300

**700 includes depreciation of amount of amount 200

5. Alice and Bob had a small loss for the month. What happened to cash? Explain.

4. What is the book value of the equipment at the end of January?