Phil Potter worked in the National Bank for 20 years, until his aunt died, leaving him a sizable estate. After sitting around long enough to get bored and see his bank balance dwindle, Phil decided to open a retail paint store. When he started the business on July 1, 1996, Valley Hills had no such store, and it appeared to Phil that the business would succeed. On July 1, Phil deposited P53,500 in a bank account under the name Phils Paints. Hethen paid P12,000 cash for store equipment, which he expected to last 10 years before it became valueless. He also bought merchandise for P37,500 cash, and paid P3,600 in advance for six months rent. Phil estimated that most paint stores marked their goods for sale at prices averaging 35% above cost. In other words, an item that cost P10.00 was marked for sale at P13.50. But toentice customers, he decided to mark his merchandise for sale at 30% above cost. Since his overhead would be low, he thought this would still leave a new income equal to 10% of sales. On December 31, 1996, six months after opening his store, Phil has come to you for advice. He thinks business has been good. However, he doesnt quite understand why his cash balance has fallen to P1,200. In talking with Phil and examining his records, you determine that the inventory was replaced three times during the six months, each time at a cost of P37,500. All merchandisesuppliers have been paid except for P10,850, which is not yet due. A full stock of mer-chandise (cost of P37,500) is on hand and customers owe Phil P29,100. In addition to therend paid in advance, Phil paid P14,700 for other expenses.

Required:

Prepare an income statement for the business covering the six-month period ended December 31, a statement of changes in owners equity, a December 31, 1996, balance sheet, and a statement that explains the P1,200 cash balance by showing the cash receipts and cash disbursements during the six months ended December 31.