Jack Blake operates a car parts store on Woodlake Drive called Parts Galore. He is the sole owner of the business. He entered into a lease arrangement for a year for the rental of business premises.

He started the business on January 1, 2021 and will prepare monthly financial statements.

He also entered into a franchise agreement with Carlot Limited to sell branded tyres for high-end vehicles. The franchise agreement required processing of all orders locally and for tyres to be shipped directly to customers.

He is not much of an accountant but has diligently recorded the following accounting transactions for the month of January 1, 2021:

January 1 He deposited $4,000,000 in Secure Commercial Bank chequing account as start-up capital with overdraft facility of $2,000,000

January 2 Upon receipt of cheque books, he paid rent by cheque in the amount of $500,000, on the same day, and purchased the following:

(i) Stationery and office supplies amounting to $50,000.

January 5

January 6

(ii) Office furniture amounting to $600,000.

(iii) Computers from Tech Limited amounting to $300,000.

He also purchased:

(i) Office furniture on credit from Business Supplies Limited amounting to $350,000.

(ii) Delivery van from E. Drive Limited on credit for $3,150,000.

He connected all utilities and opened his shop for business. He paid, by cheque, connection fees: for electricity in the amount of $50,000; and $20,000 for water. These fees are non-refundable.

He purchased stock of car parts for resale from PartsRus Limited amounting to $1,000,000, paying by cheque.

He applied and received a loan from Secure Commercial Bank. The loan terms were as follows:

(i) Duration: 4 years

(ii) Interest Rate: 6% per annum

(iii) Loan amount of $4,800,000, payable in equal monthly instalments.

(iv) Interest payment for the first month (January) was determined at

$24,000.

(v) The loan amount was deposited directly to his bank account held at

Secure Commercial Bank.

January 7 He received his first customers and sold car parts for cash amounting to $750,000.

January 12. He placed a second order for car parts (for resale) amounting to $220,000, this time on credit, from Spares Superstore Limited. The goods were received on the same day. On receipt of the items, he paid delivery fees of $40,000 in cash.

January 14 The items ordered were checked and some were found to be faulty. The value of the faulty items amounted to $80,000. He was issued a credit note for the said amount by Spares Superstore Limited on return of the faulty items.

January 15 He purchased a motorbike for $120,000 paying by cheque.

January 15 He sublet the unused space and received, in cash, rental income of $250,000.

January 15 He employed a driver at a weekly salary of $30,000. There are four weeks in the month of January. Salaries are paid on the last day of each month. The driver was paid in cash for the period worked.

January 15 On the same day he purchased petrol paying in cash in the amount of $32,000 and he insured the bike and the delivery van. He paid insurance premiums by cheque in the total amount of $110,000 for both.

January 18 He received an order from Transport Limited to supply car parts. The order was shipped on January 20, 2021 in the amount of $630,000. Transport Limited registered a 30-day credit period.

January 20 Transport Limited returned to the proprietor, Jack Blake, a few defective items. The returns amounted to $28,000.

January 27 Sales for the day amounted to $96,000 in cash. He made the following cash payments:

(i) Janitorial services $ 40,000

(ii) Internet & telephone $ 52,000

(iii) Electricity $240,000

(iv) Water $ 38,000

January 28 He received commission income from Carlot Limited in the amount of $400,000 for the processing of orders for the month of January. This amount was wired directly to his bank account.

January 31 Wages paid for the month of January by cheque were as follows:

(i) Sales Clerk. $290,00

(ii) Accounting Clerk $300,000

(iii) Bearer 56,000

The Business Entity maintained a single wages account.

January 31 Jack Blake withdrew $180,000 for personal expenses. This was done by cheque.

He also gave his two children lunch money in cash amounting to $500 per day for each child for 20 days in the month of January.

January 31 He paid the following amounts by cheque:

(a) Spares Superstore Limited $148,000

(b) E-Drive Vehicles Limited. $900,000

(c) Business Supplies Limited. $350,000

January 31 He received a cheque from Transport Limited amounting to $420,000 as

payment on account.

January 31 He paid the monthly loan instalment and interest due for month of January by cheque.

Required:

(a) Prepare ledger accounts for the month of January and balance all accounts at January 31, 2021.

(b) Extract a Trial Balance as at January 31, 2021.

Following the closing of the Trial Balance, the accounting staff carried out a stocktaking exercise and the unsold stock for the month of January amounted to $620,000.

Mr. Blake has asked that you:

(a) prepare the profit or loss statement for the month of January as he is anxious to know how well the business is doing; and

(b) advise him on the following:

(i) how the unsold stock would be treated going forward;

(ii) the total interest incurred over the four-year duration of the loan if the interest is charged on the initial loan amount;

(iii) the loan balance at January 31, 2021; and

(iv) the interest expected to be paid for the month of February.

Your response to (b) above should not exceed 100 words.

Mr. Blake received a letter from Spares Superstore Limited with an enclosed statement showing a balance of $142,000`and a demand for full settlement of the statement balance in five (5) days.

Advise Mr. Blake providing sufficient and appropriate information to enable him to respond to Spares Superstore Limited.

Your response to (3) above should not exceed 100 words.