Mike Ehrmantrauts Surf Shop began operations July 1, 2012 with an initial investment of $108,000. For a variety of reasons, Mike wanted the business to be primarily cash-based. The firm is preparing its financial statements for the first six months of its operations. During the first six months of

operations, the following cash transactions were recorded in the firms checking account:

Deposits:

Initial Investment by Owner $ 108,000

Collected from Customers 180,000

Borrowings from Bank 60,000

Checks Drawn:

Rent $ 66,000

Fixtures and Equipment 78,000

Merchandise Inventory 65,000

Salaries 40,000

Other Expenses 19,000

Additional Information:

a. Most sales during the firms first six months of operations were for cash; however, the store accepted a limited amount of credit sales; at December 31, 2012, customers owed the store $27,000 for sales completed during the six months.

b. Rent was paid on July 1 for one year.

c. Salaries of $8,000/per month are paid on the fifth of each month for the month prior. Salaries were earned but not paid at the end of December.

d. Inventories are purchased for cash; at December 31, 2012, inventory of $19,000 was still available.

e. Fixtures and equipment were expected to last for five years with $3,000 salvage value.

f. The bank charges 10% annual interest. Mike took out the loan July 1, and the first interest (annual) payment is due June 30, 2013.

g. Because of Mikes special status, the firms tax rate is only 20%. Taxes will be paid in early 2013.

Required:

Prepare the income statement for the six months ended December 31, 2012, and the ending balance sheet for December 31, 2012.