The following list is a selection of transactions from Trafalga, Inc. s business activities during 2003, 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.)