In January of year 1, an investor purchased a small store and inventory of toys/games for $300,000. The investor financed the purchase through the local bank, which loaned him 80% of the money at 7% for 10 years and required John to personally finance the other 20%. Please explain how this transaction should be recorded?

The investor has a full-time bookkeeper who handles all his books and accounting functions. There are two full-time sales clerks that work in the store and stock inventory in storage or on the shelves as it is delivered. All three of these employees have worked for him since he opened his business. The investor started each of them out at about $25,000 per year and has given each of them raises every year (approximately 3% per year). Additionally, if the company has a good year (net income), he rewards the employees by paying each of them a bonus of 3% of the net income amount. The bonuses are paid in the following year (February). Please explain how this transaction should be recorded? Suppose net income for year 1, 2, 3,4 and 5 as below.

Net income (Loss)

76,104

119,836

71,629

(27,326)

17,809

The compilation reports state that the books are kept on an accrual basis of accounting according to GAAP and that Property Equipment is capitalized at cost and depreciated using the straight-line method over the useful life of the property (Equipment 3 years, Furniture 5 years, and Building 15 years). Please explain how this transaction should be recorded?