Three former RIM employees decided to go into business

for
Three former RIM employees decided to go into business for themselves and open a store near
an office park to sell wireless equipment to young professionals. Their first products were cell
phones, PDAs, netbook and notebook computers, and computer accessories. The business
was incorporated as Connectivity Plus. The following transactions occurred during April:a. On
April 1, 20X1, each of the three invested $12,000 in cash in exchange for 1,000 shares of
stock each.b. The corporation quickly acquired $40,000 in inventory, half of which had to be
paid for in cash. The other half was acquired on open accounts that were payable after 30
days.c. A store was rented for $500 monthly. A lease was signed for one year on April 1. The
first 2 months’ rent was paid in advance. Monthly payments were to be made on the second of
each month.d. Advertising during April was purchased on open account for $3,000 from a
newspaper owned by one of the stockholders. Additional advertising services of $6,000 were
acquired for cash.e. Sales were $62,000. Merchandise was sold for twice its purchase cost.
Sales of $52,000 were on open account, and the remaining $10,000 were for cash.f. Wages
and salaries incurred in April amounted to $11,000, of which $4,000 was paid in cash.g.
Miscellaneous services paid for in cash were $2,510.h. On April 1, fixtures and equipment were
purchased for $6,000 with a down payment of $1,000 plus a $5,000 note payable in one year.i.
See transaction h and make the April 30 adjustment for interest expense accrued at 9.6%. (The
interest is not due until the note matures.)j. See transaction h and make the April 30 adjustment
for depreciation expense on a straight-line basis. The estimated life of the fixtures and
equipment is 10 years with no expected residual value. Straight-line depreciation here would be
$6,000 ÷ 10 years = $600 per year, or $50 per month.k. Cash dividends of $6,000 were
declared and disbursed to stockholders on April 29.1. Using the accrual basis of accounting,
prepare an analysis of transactions, employing the equation approach demonstrated in Exhibit
15-1 on page 621. Use the following headings: Cash, Accounts Receivable, Inventory, Prepaid
Rent, Fixtures and Equipment, Accounts Payable, Notes Payable, Accrued Wages Payable,
Accrued Interest Payable, Paid-in Capital, and Retained Earnings.2. Prepare a balance sheet
and a multiple-step income statement. Also show the components of the change in retained
earnings.3. What advice would you give the owners based on the information compiled in the
financialstatements? View Solution: Three former RIM employees decided to go into business
for
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