The Lick Skillet Bakery provides deli meals, bakery goods, and espresso to restaurant customers. It also sells take-out specialty foods, including baker)’ goods, hot and cold entrees, and so on. The owners of Lick Skillet want to know how successful the bakery was in 2000, based on the following information:

1. Lick Skillet sold food items and collected $400,500 (cash) from restaurant customers. (Ignore the cost of goods sold until transaction 8.)

2. Lick Skillet contracted with local firms to provide it with catering services totaling $560,000 during 2000.

3 Lick Skillet provided the contract catering services and collected $456,000 from its catering clients.

4. Lick Skillet purchased (with cash) restaurant equipment, expected to last three years, at a cost of $30,000.

5. Lick Skillet paid employees $475,000 during 2000.

6. Lick Skillet owed employees $55,000 for work performed near the end of December 2000.

7. Lick Skillet owed employment taxes of $67,500 for the entire year of 2000, but had not obtained the appropriate forms from the state and federal governments.

8. Lick Skillet purchased food and other consumable supplies costing $236,700 and paid cash. Although it had no inventory at the beginning of 2000, its inventory on December 31, 2000, was estimated at $6,500.

9. Items returned by disgruntled customers resulted in refunds totaling $3,550.

10. Lick Skillet purchased an insurance policy on January 1, 2000, costing $4,400 and provided insurance for both 2000 and 2001.

Required

a. Record these business transactions in the basic accounting equation, including any necessary adjustments, using the accrual basis of accounting. Set up headings as follows: Cash, Accounts Receivable, Inventory, Prepaid Insurance, Equipment, Accumulated Depreciation, Accrued Liabilities, and Owners’ Equity.

b. Prepare a multistep income statement.

c. Evaluate Lick Skillet's success in 2000.

d. What important items might Lick Skillet be ignoring in its income statement?

e. If you now find that Mr. and Mrs. Lick have worked the entire year at no salary, how would that change the analysis?

f. If you then find that the bakery is located in die Lick personal residence, how does that affect your analysis? Assume that the Licks pay rent of $3,000 per month, and that the bakery covers about two-thirds of the unit's total floor space.