TheCherry & WhiteBike Company is a small closely-held company with two owners.Its two owners,Charlotte and George, have decided to expand the business.You areCWB's accountant. Your responsibilities include maintaining all accounting records and preparing annual financial statements.

CWBwantstotake outa loan to expand itsbusiness in the coming year.The banks and lendinginstitutionsrequire a set of financial statements prepared under U.S. GAAP to evaluateCWB's credit worthiness.

You must prepare complete set of financial statements including thenotes to the financial statementsfor thequarterendingMarch31, 2018.You need to chooseCWB's accounting policies and methods for areas including inventory cost flow,revenue recognition, anddepreciation.Youwillneed to consider the proper classification of assets and liabilities as current and non-current on the balance sheet.

To obtain a loanwith the lowest interest rate available,CWBneeds to show high profitability, andstrong liquidity and solvency.You realize the common financial statement analysis ratios for profitability, solvency and liquidity will depend on theaccounting methods you choose.So, you carefully analyze the accounting choices in light of common financial statement ratios.

The ownersalsohave expressed to you that theyneed to know their inventory and cost of goods sold to manage purchases and pricing.So, you are highly consideringusinga perpetual inventory system.

Youare presented witha trial balanceas of the end of 2017and must add the transactions and activitiesthat occurred in the first quarter of 2018 as listed below.You can add accounts to the trial balance, as needed.In the first quarter of 2018Cherry & WhiteBikes had the following transactions

January1:The owners hireNinaMarton to manage the store, paying hera salary of $2,800 a month. Lisa is paid on the 1st of every month, starting onFebruary1(which would represent her January pay).They have one other employee who they pay$1,800a month, also on the 1stof the following month.Employees work 40 hours a week.

January 14:Paid utilities for 4thquarter of 2017, $775.

February1:Installed new light fixtures and display casesin the leased store.CWBpaid$1,800for the fixtures,$150for shipping to the store, and$600to anelectricianto install.CWB paid 6% sales tax on the fixtures and shipping in addition to the cost of the fixtures and equipment.It did not pay a sales tax to the electrician.CWBanticipates being in the store for atleast5years.CWBcannot take the light fixtures with them if they relocateas they will revert to the lessor.

CWBcan take the display casesif they move.The display casescost$3,600.CWBalso incurred 6% sales taxon the display cases on addition to their cost.

Both thedisplay casesand light-fixtures haveaseven-year useful life.

March1:CWB invests in a$3,0003-month treasury bill paying interest of4.0%.

March24:A customer puts down a deposit of$700on a high-endracing bike that sells for$2,900.CWBordered the bike from the manufacturer.The manufacturer promisesCWBwill have the bike at the store onApril3.

Here is other information onotheractivityand recurring transactionsthat occurred during the period.

a)CWBoffers bike tune-ups for $85each.CWB's employeeis anexperttune-ups, taking about one hour per bike for a tune-up.Below is the number of tune-upsperformed in each month.All customers pay in cash.(For recording the transactions, you can assume all tune-ups are done the last day of the month).

Month

Number of

Tune-Ups

January

16

February

34

March

32

b)CWB has the following purchases and sales of bikes during the quarter+:

Date

Transaction

Quantity

Cost per Bike

Beginning Inventory

25

$110

January 31

Sale

16

February 4

Purchase

38

$116

February 10

Sale

18

February21

Sale

22

March 2

Purchase

28

$122

March 15

Sale

20

+All purchasers of standard bikes are given the option of buying a bike for $410, or a bike with two years of tune-ups for $520.Fourof the bikes sold on February21stwere sold with the tune-up option.

**All purchases were made using cash except the March 2ndpurchase for which CWB obtainedtwo-months credit from the bike supplier.

c)CWB took out a five-year loan for $15,000 with an interest rate of 12% on January 1, 2017.The loan matures on January 1, 2022.

d)CWB rents its premises for $1,100 per month, with rent due on the 15stof the prior month.

e)CWB has a business insurance policy, which it purchased for $3,300 on July 1, 2017.The policy runs until June 30, 2018.

f)CWB owns various tools and equipment which it pools for purpose of calculating depreciation.In the past it has used straight-line depreciation over a ten-year period with no scrap or salvage value for these assets. However, with technology changing rapidly, CWB questions whether it will have to replace the equipment earlier.

g)On April 7 receivedits utilities bill for the first quarter of 2018 - $900.

h)The tax rate is20%.