Question

You set up your own business in merchandising sector in Scranton, PA - opening a luxury watch shop on 1/1/2020.

The following is related information about the business:

-   Specific sub-sector: Merchandising sector.

-   Location: Scranton, PA

-   Business model: merchandiser - buying and selling luxury watches.

-   Investment by owner: $1,000,000

- You hired a shop manager. In order to handle different aspects of business, you had one employee responsible for the purchasing, receiving, and storing of watches purchased. A second employee is responsible for the maintenance of account receivable records and collection from customers. A third employee has responsibility for personal records, timekeeping, preparation of payrolls, and distribution of payroll checks. As a part of his job, the shop manager would do some internal control functions. In addition, you hired one security officer, and 4 full-time sales assistants.

Requirements:

1. You are given the following economic events of the business in 2020

1/1/2020: Opened the business, invested $1,000,000 cash in the business.

1/1/2020: bought a building for the business purpose for $100,000 cash. The building has a useful economic life of 10 years.

1/1/2020: purchased 100 luxury watches for $200,000 with $100,000 cash payment, the remaining amount payable on 2/1/2021. (each watch costs $2,000)

3/1/2020: purchased 50 luxury watches for $250,000 with cash. Each watch costs $5,000.

4/1/2020: purchased 40 luxury watches for $240,000 with cash. Each costs $6,000.

6/1/2020: Sold 130 watched for $1,300,000. Of which $300,000 cash was received at the time of sale. The remaining amount to be received on 5/2/2021.

7/1/2020: paid $1,200 in advance for 12 months’ property insurance (7/1/20 to 7/1/21).

8/1/2020: borrowed $500,000 from a local Chase bank. Interest rate is 12%/year. Interest is paid every 6 months- the first payment date is 2/1/2021. Principal would be paid on 8/1/2021.

9/1/2020: to expand business, you rent a showroom in the next building. Paid $24,000 cash in advance for 12 month’s rent.

12/31/2020: Paid 2020 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’s salary expense is $20,000.

Notes:

• On 12/31/2020: Physical inventory showed that there were 60 luxury watches on hand at the end of the period. The company used periodic inventory system, and used FIFO costing method.
• Your business used straight-line depreciation method for all fixed assets.
• Ignore tax.

Requirement: Prepare an excel file that includes

Prepare Statement of retained earnings for year ended 12/31/2020

Answer 1

Financial Statement
Assets	As at December 31, 2020
Cash & Cash Equivalent			$                        820,800
Inventory			$                        340,000
Trade Receivable			$                     1,000,000
Prepaid Expenses			$                          16,600
Current Assets			$                   2,177,400
Building		$             100,000
Less :- Depreciation		$              10,000	$                          90,000
Non- current assets			$                         90,000
Total Assets			$                   2,267,400
Liabilities	As at December 31, 2020
Capital			$                     1,000,000
Retained Earnings			$                        637,400
Equity			$                   1,637,400
Trade Payable			$                        100,000
Borrowings			$                        500,000
Accrued Interest on borrowings			$                          30,000
Total liabilities			$                       630,000
			$                   2,267,400
Income Statement
Particulars	For the year ended December 31, 2020
Sales			$                     1,300,000
Net Sales			$                   1,300,000
Consumption			$                        350,000
Employee benefit expenses			$                        240,000
Depreciation			$                          10,000
Other Expenses			$                          32,600
Interest Expenses			$                          30,000
Total Expenses			$                       662,600
Net Profit			$                       637,400
Statement of Retained Earnings
Particulars	Capital	Retained Earnings	Total Equity
Capital introduced	$      1,000,000	$                     -	$                     1,000,000
Net Profit for the year 2020	$                 -	$             637,400	$                        637,400
Capital balance as on December 31, 2020	$    1,000,000	$           637,400	$                   1,637,400