Transaction Analysis: Preparing Financial Statements
Susan’s Shoe Shop opened on January 1. The following transactions took place during the first month:
1.Deposited $30,000 in the firm’s checking account.
2.Purchased shoes, boots, socks, and other inventory for $45,000 on account.
3.Purchased display shelving, chairs, and other fixtures for $10,000 cash and
$40,000 on account. Assume a useful life of five years.
4.Obtained $20,000 and signed a three year, $20,000 bank loan at 8% annual interest.
5.Had sales revenue during January of $75,000. Of this amount, $25,000 was received in cash and the balance was on account.
6.The cost of the merchandise sold in item 5 was $32,000.
7.Paid $10,000 to each of two different creditors.
8.Signed an application for a one year insurance policy and paid the year’s premium of $2,400.
9.Paid three employees a monthly salary of $2,000 each.
10.Collected $35,000 from (accounts receivable) customers.
Required
a. Analyze these transactions, including any appropriate adjustments, using the basic accounting equation.
b. Prepare a simple income statement for the firm.
c. Identify any significant missing elements in your income statement.
d. Prepare a simple balance sheet for Susan’s Shoe Shop.