Determining the cost of financing inventory
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?
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