You set up your own business inmerchandising sector. You lease a space of 6,000 square feet toopen a luxury watch shop.
The following is minimum informationregarding the business:
- Specific sub-sector: Merchandisingsector.
- Business model: buyingand selling luxury watches.
- Investment by owner:$1,000,000
- You hire a shop manager, twoaccounting staffs who also keep the merchandise, one securityofficer, and 8 full-time sales assistants.
- Business costs/expensesshould have at least the following: cost of merchandise sold, rentexpense, salary, utilities expense, advertising expense, interestexpense, and miscellaneous expenses.
- 1/1/2019 : Opened the business, invested $1,000,000 cash in thebusiness.
- 1/1/2019; bought a building for the business purpose for100,000 cash. The building has a useful economic life of 10years.
- 1/1/2019; bought store and office fixture for $20000 cash.
- 1/1/2019: purchased 100 luxury watches (Inventory) for $200,000with $100,000 cash payment, the remaining amount payable on2/1/2020. ( each watch costs $2,000)
- 3/1/2019: purchased 50 luxury watches (Inventory) for $250,000.Each watch costs $5,000.
- 4/1/2019: purchased 40 luxury watches (Inventory) for $240,000.Each cost $6,000.
- 6/1/2019: Sold 130 watched for $1,300,000. Of which $300,000cash was received at the time of sale. The remaining amount to bereceived on 5/2/2020.
- 7/1/2019: paid $1,200 in advance for 12 months’property insurance
- 8/1/2019: borrowed $500,000 from a local Chase bank. Inrerestrate is 12%/year. Interest is paid every 6 months- the firstpayment date is 2/1/2020. Principal is paid on 8/1/2020.
- 9/1/2019: to expand business, you rent a showroom in the nextbuilding. Paid $24,000 cash in advance for 12 month’s rent.
- 12/31/2019: Paid 2019 utilities expense, advertising expense,and miscellaneous expense for $5000, $15,000, and $4,000,respectively.
- Salary is paid on the last day of each month. Each month’ssalary expense is $20,000.
Notes:
- On 12/31/2019: Physical inventory showed that there were 60luxury watches on hand at the end of the period. The company usedperiodic inventory system, and used FIFO costing method.
- Your business used straight-line depreciation method for allfixed assets.
- Ignore tax.
Prepare financial statements on 12/31/2019.
