Question 1 (40 points):

Prepare the beginning balance sheet as of December 31, 2020 as well as the three financial statements for the fiscal year ending December 31, 2021.

Initial set up on December 31, 2020:

Coffee shop Cozy Corner: $70,000 in personal funds (10,000 shares issued), $30,000 in loan at 10% interest rate.

Purchase equipment, tables, and chairs for $20,000 with a useful life of 4 years. Purchase inventory for $20,000 in cash.

Question: What does the opening BS look like? (10 points)

During the fiscal year ended December 31, 2021:

Sell $120,000 worth of coffee but have collected $100,000 in cash. Customers still owe you $20,000.

Use up all of the existing inventory for the sales.

Purchase additional inventory of $35,000 ($30,000 in cash, $5,000 in credit)

Hire a cashier and a barista for 40,000 total.

Pay rent of 10,000 for the year

Take depreciation expense

Pay interest expense on the loan

Pay taxes at 25% of taxable income

Purchase $10,000 in additional equipment. No depreciation taken on this equipment during 2020.

Question: Build the three financial statements for fiscal year 2021 (Income statement: 10 points, Cash flow statement: 10 points, Balance sheet: 10 points)

Balance sheet As of Dec 31, 2021 AP Debt Cash AR Inventory PP&E Shareholders' equity Retained earnings Total assets Total liabilities and equity Does the balance sheet balance? Yes