P3.1   Recording transactions I

After gaining experience of the cloth trade in France, Francesco Datini returns to his native Tuscany  in x3 and opens his own wholesale cloth business in Prato, specialising in fine imported materials. From his business records, you learn the following facts about operations in January, the first month  of operations.

 

1     Datini and associates set up a company, Datini SpA, and invest 25,000 in  it.

2     The company rents a warehouse with offices at the start of January, paying 14,400 for six months rent in advance.

3     The company purchases equipment costing 15,000 for the warehouse and offices. It makes a 20% cash downpayment and agrees to pay the balance in 60   days.

4     The company buys 20,000 of merchandise on  credit.

5     It sells cloth costing 15,000 for 25,000. All of the sales are on account, save for 2,000 which are for cash.

6     Company employees earn salaries of 2,500 in January; 200 is unpaid at  month-end.

 

 

7     A (credit) customer returns and receives full credit for cloth with a sale price of 1,000 which      was shipped in error. The gross margin on the merchandise is the same as the average on the month’s sales (see 5).

8     Other operating expenses in the month amount to 600, which are all paid in   cash.

9     Equipment depreciation of 100 is recognised. So, too, is rent for the month (see   2).

10      The company’s profits are taxed at 30%. None of the liability has been paid by the end of January.

 

Required

(a)     Record the above transactions on a worksheet similar to that used in Exhibits   3.1–3.3.

(b)    Prepare an income statement for January and a balance sheet at 31 January for the company.

Check figure:

Total assets, 31/1/x3           61,200