Reference no: EM132923155

Question - Preparing Accounting Transactions and Adjustments and Financial Statements Stocken Surf Shop began operations on July 1 with an initial investment of $50,000. During the first three months of operations, the following cash transactions were recorded in the firm's checking account.

Deposits Checks Drawn

Initial investment by owner $50,000

Collected from customers 81,000

Borrowings from bank 10,000

$141,000

Rent $24,000

Fixtures and equipment 25,000

Merchandise inventory 62,000

Salaries 8,000

Other expenses 13,000

$132,000

Additional information:

1. Most sales were for cash; however, the store accepted a limited amount of credit sales; at September 30, customers owed the store $9,000.

2. Rent was paid on July 1 for six months. (The company recorded prepaid expense, an asset, on July 1.)

3. Salaries of $4,000 per month were paid on the first of each month for salaries earned in the month prior.

4. Inventories were purchased for cash; at September 30, inventory of $28,000 was still available.

5. Fixtures and equipment were expected to last five years (or 60 months), with zero salvage value.

6. The bank charges 12% annual interest (1% per month) on the $10,000 bank loan. Stocken took out the loan on July 1.

Required -

a. Record all of Stocken's cash transactions, and create any necessary adjusting entries at September 30. You may either use the financial statement effects template or journal entries combined with T-accounts.

b. Prepare the income statement for the three months ended September 30 and the balance sheet at September 30.

c. Analyze the statements from part b, and assess the company's performance over its initial three months.