On January 1, 2008, Mel Stark started a small sailboat merchandising business that he named Mel’s Sails. The company experienced the following events during the first year of operation:

1. Started the business by issuing common stock for \($20,000\) cash.

2. Paid \($14,000\) cash to purchase inventory.

3. Sold a sailboat that cost \($9,000\) for \($16,000\) on account.

4. Collected \($10,000\) cash from accounts receivable.

5. Paid \($2,500\) for operating expenses.

Required:

a. Organize ledger accounts under an accounting equation and record the events in the accounts.

b. Prepare an income statement, balance sheet, and statement of cash flows.

c. Since Mel sold inventory for \($16,000\), he will be able to recover more than half of the \($20,000\) he invested in the stock. Do you agree with this statement? Why or why not?