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Exercise: The Ice Cream Store, Inc.

Exercise: The Ice Cream Store, Inc. The Ice Cream Store, Inc. incurred the following start-up costs: The Ice Cream Store, Inc. was formed on October 1, 20XX, with the investment of $90,000 in cash by the owners.

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Exercise: The Ice Cream Store, Inc.

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  1. Exercise: The Ice Cream Store, Inc. The Ice Cream Store, Inc. incurred the following start-up costs: • The Ice Cream Store, Inc. was formed on October 1, 20XX, with the investment of $90,000 in cash by the owners. • Obtained a bank loan and received the proceeds of $35,000 on October 2. The cash will be used for operations. • Purchased equipment for $25,000 cash on October 2. • Acquired a building at a cost of $80,000. It was financed by making a $20,000 down-payment and obtaining a mortgage for the balance. The transaction occurred on October 2. • On October 2, the President of the United States publicly declared that she will eat (and plug) our ice cream while entertaining guests in the White House. Prepare a transaction analysis of 1. – 5. using the financial statement effects template:

  2. Ice Cream Shop Balance Sheet:

  3. Ice Cream Shop – additional transactions • On October 4, purchased merchandise inventory (i.e., ice cream) at a cost of $15,000 by paying $5,000 cash and receiving short-term credit for the remainder from the supplier. • Immediately returned some of the ice cream because some of the flavors delivered were not ordered. The cost of the inventory returned was $3,000. • Sales of ice cream for the month of October, 20XX, totaled $8,000. All sales were for cash. The ice cream cost $3,500. • For all of October, total employee wages and salaries earned/paid were $3,000. • As of the end of October, one month's depreciation on the equipment and building was recognized -- $383 for the building and $167 for the equipment. • $450 interest expense on the note and mortgage was due and paid on October 31. Assume that the principal amounts ($35,000 + $60,000) of the note and mortgage remain unchanged. Prepare a transaction analysis of 6. -11. using the balance sheet/income statement template presented above:

  4. Prepare the following financial statements (ignore income taxes): (i) an updated Balance Sheet as of October 31, 20XX; and (ii) an Income Statement for the month of October 20XX.

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