On January 1, 2012, Fran started a small flower merchandising business that she named Fran’s Flowers. The company experienced the following events during the first year of operation.
1. Started the business by issuing common stock for $20,000 cash.
2. Paid $28,000 cash to purchase inventory.
3. Sold merchandise that cost $16,000 for $36,000 on account.
4. Collected $30,000 cash from accounts receivable.
5. Paid $7,500 for operating expenses.
Required
a. Organize ledger accounts under an accounting equation and record the events in the accounts.
b. Prepare an income statement, a balance sheet, and a statement of cash flows.
c. Since Fran sold inventory for $36,000, she will be able to recover more than half of the $40,000 she invested in the stock. Do you agree with this statement? Why or why not?