Question
Preparing Adjusting Entries, Financial Statements, and Closing Entries Seaside Surf Shop began operations on July 1, 2014, with an initial investment of $50,000. During the
Preparing Adjusting Entries, Financial Statements, and Closing Entries
Seaside Surf Shop began operations on July 1, 2014, with an initial investment of $50,000. During the initial 3 months of operations, the following cash transactions were recorded in the firms checking account.
Cash receipts | Cash payments |
Initial investment by owner.......$ 50,000 | Rent .........................$ 24,000 |
Collected from customers .......81,000 | Fixtures and equipment .........25,000 |
Borrowed from bank 7/1/2014 ....10,000 | Merchandise inventory ..........62,000 |
Total cash receipts.............$141,000 | Salaries ......................6,000 |
Other expenses................13,000 | |
Total cash payments............$130,000 |
Additional information
1. Most sales were for cash, however, the store accepted a limited amount of credit sales; at September 30, 2014, customers owed the store $9,000.
2. Rent was paid on July 1 for six months.
3. Salaries of $3,000 per month are paid on the 1st of each month for salaries earned in the month prior.
4. Inventories are purchased for cash; at September 30, 2014, inventory worth $21,000 was available.
5. Fixtures and equipment were expected to last ve years with zero salvage value.
6. The bank charges 12% annual interest (1% per month) on its bank loan.
Required
Prepare its initial three-month income statement for 2014 and its balance sheet at September 30, 2014. (Ignore taxes.)
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