The business was started when the company received $48,500 from the issue of common stock. Purchased merchandise inventory of $175,000 on account. Sold merchandise for $195,500 cash (not including sales tax). Sales tax of 7 percent is collected when the merchandise is sold. The merchandise had a cost of $120,500. Provided a six-month warranty on the merchandise sold. Based on industry estimates, the warranty claims would amount to 5 percent of sales. Paid the sales tax to the state agency on $145,500 of the sales. On September 1, Year 1, borrowed $20,000 from the local bank. The note had a 6 percent interest rate and matured on March 1, Year 2. Paid $5,600 for warranty repairs during the year. Paid operating expenses of $54,000 for the year. Paid $124,800 of accounts payable. Recorded accrued interest on the note issued in transaction number 6.

Required a. Show the effect of these transactions on the financial statements using a horizontal statements model. The first transaction is recorded as an example. (Use + for increase, - for decrease, and leave blank for not affected. In the Statement of Cash Flows column, indicate whether the item is an operating activity (OA), investing activity (IA), financing activity (FA), or not affected (leave blank).) - Horizontal Statements Model Balance Sheet Income Statement Event Assets Statement of Cash Flows = Liabilities Stockholders' Equity + Revenue Net Income Expenses 1. + + + II + FA 2. II + 3a. = + = 3b. II + = = + = = + = + O N + + + + 10. +