QUESTION 3

Mr. Paymaster sets up a retailing of academic textbooks on 1 January 2022. He opens a bank account and banks in $2,500 from his personal savings. At the same time, a start-up business loan of $5,000 from the government was banked into the bank account.

On 5.1.2022, Mr. Paymaster purchased 50 academic textbooks on credit for $500. On 7.1.2022, the business sells 10 academic textbooks on credit for $100. On 10.1.2022, the business issued a cheque for $300 for the academic textbooks purchased on 5.1.2022. On 15.1.2022, an additional $1,000 was introduced into the business.

Required

(a) Explain in narrative form, the effect of the above transactions on the business of Mr. Paymaster for

the month of January 2022.

(b) Explain the effect of the transaction made on 7.1.2022, if the academic textbooks were sold for $250

on credit.

(c) Calculate the ending inventory, if the First-in-First-Out basis of inventory valuation was used by the

business as based on the original transaction on 7.1.2022.