Sturgis Company completed the following transactions during 2012. The annual accounting period ends December 31, 2012.

Jan. 15 Recorded tax expense for the year in the amount of $125,000. Current taxes payable were $93,000.

31 Paid accrued interest expense in the amount of $52,000.

Apr. 30 Borrowed $550,000 from Commerce Bank; executed a 12-month, 12 percent interest bearing note payable.

June 3 Purchased merchandise for resale at an invoice cost of $75,820, on account.

July 5 Paid June 3 invoice.

Aug. 31 Signed contract to provide security service to a small apartment complex and collected six months’ fees in advance amounting to $12,000. (Record the collection in a way that will not require an adjusting entry at year-end.)

Dec. 31 Reclassified a long-term liability in the amount of $100,000 as a current liability.

31 Determined salary and wages of $85,000 earned but not yet paid December 31 (disregard payroll taxes).

Required:

1. Prepare journal entries for each of these transactions.

2. Prepare all adjusting entries required on December 31, 2012.

3. Show how all of the liabilities arising from these transactions are reported on the balance sheet at December 31, 2012.

4. For each transaction, state whether cash flow from operating activities is increased or decreased or whether there is no effect.