John Smith starts an incorporated an online music store called Music mart Inc. on 1st January, 2019 as 'One Person Company'. He does this by depositing $25,000 of his funds in bank account that he has opened in the name of the business entity and taking $25,000 of stock certificates in return from the company. Further transactions are as under: 1. Music Mart borrows $12,500 from a bank on January 2; the loan is evidenced by a legal document. 2. The business buys inventory worth $5,000 on January 3 by paying cash. 3. On January 4th, store sells merchandise costing $500 for $ 750 for cash. 4. The store purchased and received merchandise for inventory for $5,000, agreeing to pay within 30 days. 5. Merchandise costing $1,500 was sold for $2,300, which was received in cash 6. Merchandise costing $1,700 was sold for $2,620 the customers agreeing to pay $2,620 within 30 days. 7. The store purchased a three-year fire insurance policy for $1,224, paying cash. 8. The store purchased two lots of land of equal size for a total of 24,000. It paid $6,000 in cash and gave a 10- year mortgage for $18,000. 9. The store sold one of the two lots of land for $12,000. It received $3,000 cash, and in addition, the buyer assumed $9,000 of the mortgage; that is Music Mart, Inc., became no longer responsible for this half. 10. Smith withdrew $1,000 cash from the store's bank account treating it as a share of profit. 11. Smith took merchandise costing $750 from the store's inventory treating it as a share of profit. 12. Smith leaned that the individual who purchased the land (No. 8 above) subsequently sold it for $14,000. The lot still owned by Music Mart, Inc., was identical in value with this other plot. 13. The store paid off $5,000 of its Creditors. 14. Smith sold one-third of the stock he owned in Music Mart, Inc., for $11,000 cash. 15. Merchandise costing $850 was lost in fire. Insurance company has admitted the claim, but has not yet disbursed it.

Q-1. Prepare the journal entries for the transactions. Q-2. Prepare an income statement, balance sheet and cash flow statement. Q-3. Compute the following ratios and explain what the results suggest about the company: a. Current ratio b. Total asset turnover