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.)