Chapter 3, Problem 1E

Exercise 3-1 Determining the cost of financing inventory

On January 1, 2018, Jana started a small flower merchandising business that she named Jana’s Flowers. The company experienced the following events during the first year of operation:

1. Started the business by issuing common stock for $30,000 cash.

2. Paid $19,000 cash to purchase inventory.

3. Sold merchandise that cost $10,000 for $21,000 on account.

4. Collected $16,000 cash from accounts receivable.

5. Paid $3,750 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 Jana sold inventory for $21,000, she will be able to recover more than half of the $30,000 she invested in the stock. Do you agree with this statement? Why or why not?