Problem $3-1$

$30$ points

The following information is available for two different types of businesses for the $2025$ accounting period. Blenheim CPAs is a service business that provides accounting services to small businesses. Picton Inc is a merchandising business that sells sports clothing, trophies and medals to college students.

Data for Picton Inc

$1.$

$2.$

Borrowed $$450,000$ from the bank to start the business.

$3.$ Purchased $$288,000$ inventory for cash. Inventory costing $$165,600$ was sold for $$270,000$ cash. hint : transaction $3$ is $2$ transactions. Think $3$a and $3b.$

$4.$ Paid $$37,800$ cash for operating expenses.

Data for Blenheim CPAs

Borrowed

Provided and earned $$450,000$ from the bank to start the business.

Paid salary expense of $$315,000$ of services to customers and collected $$225,000$

REQUIRED

a$.$ Prepare an income statement, a balance sheet, and a statement of cash flows for each of the companies. This is different than completing a horizontal model. A horizontal model can help organize the transactions.

b$.$ Why does the CPA firm not compute gross margin on its income statement?

c$.$ Which of the two businesses would have product costs or cost of goods? Why?

d$.$ Compare the assets of both companies. What assets do they have in common? What assets are different? Why?