Shirley Sze incorporated Shirley’s Snack Shop on April 30, 2020, by investing $5,000 in cash. The following is a summary of the other events affecting the business during its first eight months of operations:

1. On May 1, Shirley acquired a licence from the municipality at a cost of $150. The licence allows her to operate the snack shop for one year.

2. On May 2, she borrowed $10,000 from the bank and used most of it to buy equipment costing $9,600. The interest rate on the loan is 10%, and the interest is to be paid annually (each May). The entire principal amount is repayable at the end of three years. Shirley estimates that the equipment will last 10 years, after which it will be scrapped. On December 31, 2020, she estimated that the equipment could have been sold for $9,200.

3. At the beginning of September, Shirley realized that she should have liability insurance and purchased a one-year policy effective immediately. The premium paid was $750.

4. Her business is located in a small shop near the university campus. The rental cost is $900 per month, and she has paid nine months of rent thus far.

5. Shirley paid herself a salary of $1,000 a month, and a part-time assistant earned wages of $350 each month. However, she has not yet paid her assistant his wages for December.

6. Shirley’s purchases of food supplies, on account, cost a total of $22,500. All but $4,500 of this has been used, and she still owes the supplier $4,000. Of the food supplies that have been used, most went into snacks that were sold to customers; however, Shirley ate some of them herself, as on-the-job meals. She estimates that the snacks she consumed were purchased from the supplier at a cost of approximately $200 and were priced to sell to her customers for approximately $400.

7. According to her bank records, Shirley received $42,300 from her customers and deposited this in the bank during the period. However, a customer still owes her $500 for snacks provided for a company party held shortly before the end of the year. The balance in her bank account on December 31 is $9,750. 

8. Shirley thinks that she has had fairly successful operations since opening the business. However, she has no idea how to calculate its net income or determine its financial position.

Required

a. Provide Shirley with a statement of income for the eight-month period ended December 31, 2020, and a statement of financial position as at that date.

b. Comment on the snack shop’s performance during its first eight months of operations and its financial standing as at December 31, 2020.