The following list is a selection of transactions from Trafalga, Inc.’s business activities during 2012, the first year of operations.

a. Received $50,000 cash for capital stock.

b. Paid $5,000 cash for equipment.

c. Purchased inventory costing $18,000 on account.

d. Sold $25,000 of merchandise to customers on account. Cost of goods sold was $15,000.

e. Signed a note with a bank for a $10,000 loan.

f. Collected $9,500 cash from customers who had purchased merchandise on account.

g. Purchased land, $10,000, and a building, $60,000, for $15,000 cash and a 30-year mortgage of $55,000.

h. Made a first payment of $2,750 on the mortgage principal plus $2,750 in interest.

i. Paid $12,000 of accounts payable.

j. Purchased $1,500 of supplies on account.

k. Paid $2,500 of accounts payable.

l. Paid $7,500 in wages earned during the year.

m. Received $10,000 cash and $3,000 of notes in settlement of customers’ accounts.

n. Received $3,250 in payment of a note receivable of $3,000 plus interest of $250.

o. Paid $600 cash for a utility bill.

p. Sold excess land for its cost of $3,000.

q. Received $1,500 in rent for an unused part of a building.

r. Paid off $10,000 note, plus interest of $1,200.

Required:

1. Set up T-accounts, and appropriately record the debits and credits for each transaction directly in the T-accounts. Leave room for a number of entries in the cash account.

2. Prepare a trial balance.

3. Prepare an income statement for the period. (Ignore income taxes and the EPS computation.)