Reference no: EM133057728

Question - Lance has decided to step away from the busy lifestyle of a lawyer and move to the beach. Lance likes the beach lifestyle and wants to live a relaxed lifestyle at this stage in his life. He also wants something to do and some income so he does not get bored. Lance decides to open a fish store. He believes everyone would enjoy his taste in fish and wants a fish tank in their beach house. As an attorney, he has no background in running his own business. Lance goes to the local bank at the beach and they inform him that he needs to get a business name to open a business account. He decides on Lance's Fish Heaven. Lance opens the business bank account with $50,000 of his own money as the initial investment. He does not want to put a lot of money into the business in case it is not successful. He is looking to you for some guidance since you have your MBA. Lance has his checkbook and a few notes about what he has done over the past three months.

Lance gives you his checkbook which shows over the past three months. The business checking account shows the business collects a good amount of money. The first month the business collected $23,000 cash deposits from customers. In the second month, the business collected $28,000 in cash deposits from customers. In the third month the business collected $30,000 in cash deposits from customers. Even though Lance put up $50,000 he had a get a small loan from the bank on day one of the first months of $10,000 to help meet some upfront expenses.

When Lance was trying to lease a commercial space the landlord want a year-long lease. But Lance negotiated a six-month lease if he were to pay upfront. So Lance prepaid the rent for six months at $4,000 for each month. After Lance secured the commercial space he had to buy all the equipment and fixtures for the fish store. There are several checks to various vendors but the equipment and fixtures total $25,000. Then there were several checks for all the inventory that the business purchased. The business purchased $20,000 worth of inventory in the first month. The business purchased $20,000 in the second month. The business purchased $22,000 worth of inventory in the third month of business. The business only had two employees and their salaries are paid on the first day of the next month after they work. So after working the first month and in month two on day one the business paid $4,000 in salaries. Then after working in month two and on month three day one the business paid another $4,000 in salaries. There were some other checks written for various expenses throughout the first three months. After adding all these up these other expenses total $13,000.

Lance provides you with the notes that he calls his accounting records. As stated earlier above most of the sales were in cash and already deposited in the local bank. The business did offer some credit to credit-worthy customers. Since the business accepted a limited amount of credit sales; at the end of the third-month customers owed the store $9,000. Also, the rent that the business paid the landlord was recorded as a prepaid expense, an asset in the company records according to Lance. The business did an inventory count after the first three months of being open. As stated above the business paid cash for most of the inventory. At the end of the third month, the store had an inventory of $28,000 still available. Also, the fixtures and equipment were expected to last five years (or 60 months), with zero salvage value. Lastly, Lance was not too happy that the business had to borrow some money from the local bank in the first three months of operation. The bank charges 12% annual interest on the $10,000 bank loan. Lance's Fish Heaven had the loan outstanding for three months and still has not paid it back to the bank yet. He is waiting for your assessment before he writes a large check to the bank for that amount of money.

Required -

1. Record all of the transactions and any necessary adjustments for Lance's Fish Heaven. You must show journal entries combined with T-accounts.

2. Prepare the income statement for the first three months and the balance sheet at the end of the third month.

3. Analyze the two financial statements from part 2 answer, and assess the company's performance over its initial three months.

4. Lance is happy with his bookkeeping for the first three months. He writes everything down in his checkbook register. He believes that he can continue to do it this way. Please provide Lance with any advice for accounting and record-keeping.

5. Ethical question-as a manager one is responsible for the resources of the business. This includes the physical assets and the information that is produced about the business. The Bible calls this Christian Stewardship. When it comes to producing financial statements what is the importance of adjusting entries? What are the overall effects of adjusting entries on financial statements? If adjusting entries are not done in the accounting process has management acted ethically? Please explain your answer and back up your responses and not just answer yes or no.