Question

C3-55 i need the answer mainly B,D

C3-55. Preparing Adjusting Entries, Financial Statements, and Closing Entries LO2,3, 4,5 Seaside Surf Shop began operations on July 1, 2014, with an initial investment of $50,000. Dur ing the initial 3 months of operations, the following cash transactions were recorded in the firm's checking account. Cash receipts Cash payments Collected from customers . ..81,000 Borrowed from bank 7/1/2014.... 10,000 Fixtures and equipment... . . . . .. Merchandise inventory . . . . . . . 25,000 62,000 Additional information 1. Most sales were for cash, however, the store accepted a limited amount of credit sales; at Sep- tember 30, 2014, customers owed the store $9,000 2. Rent was paid on July 1 for six months 3. Salaries of $3,000 per month are paid on the 1st of each month for salaries earned in the month prior. Inventories are purchased for cash; at September 30, 2014, inventory worth $21,000 was 4. available 5. Fixtures and equipment were expected to last five years with zero salvage value 6. The bank charges 12% annual interest (1% per month) on its bank loan. Required a. Prepare any necessary adjusting entries at September 30, 2014, (1) using the financial state- ment effects template, and (2) in journal entry form. b. Set up T-accounts and post the adjusting entries to them. c. Prepare its initial three-month income statement for 2014 and its balance sheet at September 30, 2014. (Ignore taxes.) Analyze the statements from part c and assess the company's performance over its initial 3 months d.

Answer 1

Prepaid Rent account

Date	Particulars	Amount	Date	Particulars	Amount
July 1	To Cash	24,000	Sep 30	By Profit and Loss	12,000
			Sep 30	By Balance	12,000
		24,000			24,000

Interest on Loan Account

Date	Particulars	Amount	Date	Particulars	Amount
July 31	To Interest Payable	100	Sep 30	By Profit and Loss	300
Aug 31	To Interest Payable	100
Sep 30	To Interest Payable	100
		300			300

Salaries Account

Date	Particulars	Amount	Date	Particulars	Amount
Sep 30	To Salaries Payable	3,000	Sep 30	By Profit and Loss	3,000
		3,000			3,000

Trading Account

Date	Particulars	Amount	Date	Particulars	Amount
	To Purchases	62,000	Sep 30	To Credit Sales	9,000
	To Gross Profit	49,000		To Cash Sales	81,000
				To Closing Stock	21,000
		111,000			111,000

Fixtures and Equipment Account

Date	Particulars	Amount	Date	Particulars	Amount
	To Bank	25,000	Sep 30	To Depreciation	1,250
			Sep 30	To balance	23,750
		25,000			25,000

D. Analysing the Company's Performance

- The company has been able to generate a profit of $13,450 during its first three months of operations.

- The Balance Sheet shows assets worth $ 76,750. The company has a Cash/Bank balance of $11,000 and Retained Earnings of $13,450. Also. the company has Debtors worth $9,000. The company also holds inventory of $21,000. The company owes $10,300 to the bank. The company has fixed assets at WDV of $23,750.