Widget Shop-Merchandising (200 points) Assets Amount Liabilities & Equity Amount Cash $100,000 Accounts Payable $22,000 Accounts Receivable 35,000 Notes Payable Short term 65,000 Supplies 4,000 Long Term Notes Payable 95,000 Inventory 40,000 Common Stock 30,000 Equipment 200,000 Additional Paid in Capital Common stock 20,000 Accumulated Depreciation-Equipment (40,000) Retained Earnings 195,000 Vehicle 60,000 Accumulated Depreciation-Vehicle (12,000) Land 40,000 Total Assets $427,000 Total Liabilities & Equity $427,000 Sam Rumor operates a widget shop. The shop specializes in a selection of various widget products. You have been hired as manager. Your duties include maintaining the stores financial records. Here above is the post-closing trial balance accounts at the end of the previous year. The following transactions occurred during January, of this year. a. Received cash of $40,000 and $60,000 for machinery in exchange for common stock. b. Paid six months rent for the store at $5,000 per month (five months are prepaid). c. Purchased inventory for $50,000 on account (2/10 and n/30 days.) d. Purchased supplies for $7,700 on account. e. Made sales on account for $98,000 with the costs of $49,000 at 2/10, n/30. f. Negotiated and signed a two-year $100,000 loan at the bank, receiving cash at the time. g. Used the money from (f) to purchase several computers for $7,500; then used the balance for a vehicle-$35,000 and equipment-$57,500 for the shop. h. Received payment for sales in (e) within the discount period. i. Paid expenses: advertising expense of $8,000 and salaries of $18,500. j. Made sales for cash totaling $78,000 with a costs of $36,000.

k. Made a payment on inventory accounts payable balance of $40,000 from transaction c above within the discount period. l. Collected accounts receivable of $28,000 from customers after discount period. m. Business is going well so issued more common stock. Sam purchased par value stock of $10,000 for $20,000 cash. n. Record Deprecation: Help-all assets have no salvage value. Estimated useful lives: computers-3 years; machinery-7 years; vehicle-5 years; and for the equipment-15 years. o. Received a cash payment for widgets in advance of $25,000. Will deliver it next month. p. Office supplies on hand at the end of month were $3,000. Hints 1. Follow the accounting cycle 2. Use the existing accounts and open new accounts when needed. See Chapter 2 for new accounts. 3. When doing ratios-show the ratio formula, show the numbers you are using, then make sure you compute 2-4 ratios and provide an analysis for each ratio. 4. A memo is 6-8 sentences and do not forget to include your ratios and analysis. Required 1. Record journal entries for each of the transactions. 2. Prepare a trial balance. 3. Prepare an income statement at the end of the first month of operations ended January 31. 4. Prepare a statement of retained earnings for the period ended January 31. 5. Prepare a balance sheet as of January 31. 6. Write a memo to Sam offering your opinion on the results of operations during the first month of business this year, January 1-31. 7. After three years in business the following data was computed. Based on this information provide another memo/report to Sam on the performance of the shop for the past 3 years. (Dont forget to include ratios.) Year 2020 2021 2022 Total Assets $152,500 $208,500 $227,000 Total Liabilities 78,500 82,000 97,000 Total Equity 74,000 126,500 130,000 Sales Revenue 255,000 242,500 233,500 Net Income 24,400 15,000 9,000