Shirley Sze incorporated Shirley s Snack Shop on April 30

2011 #3680
Shirley Sze incorporated Shirley's Snack Shop on April 30, 2011, by investing $5,000 in cash.
The following is a summary of the other events affecting the business during its first eight
months of operations:1. On May 1, Shirley acquired a licence from the municipality at a cost of
$150. The licence allows her to operate the snack shop for a period of one year.2. On May 2,
she borrowed $10,000 from the bank and used most of it to buy equipment costing $9,600. The
interest rate on the loan is 10%, and the interest is to be paid annually (i.e., each May). The
entire principal amount is repayable at the end of three years. Shirley estimates that the
equipment will last 10 years, after which it will be scrapped. On December 31, 2011, she
estimated that the equipment could have been sold for $9,200.3. At the beginning of
September, Shirley realized that she should have liability insurance and purchased a one-year
policy effective immediately. The premium paid was $750.4. Her business is located in a small
shop near the university campus. The rental cost is $900 per month and she has paid nine
months of rent thus far.5. Shirley paid herself a salary of $ 1,000 a month, and a part-time
assistant earned wages of $350 each month. However, she has not yet paid her assistant his
wages for December.6. Shirley's purchases of food supplies, on account, cost a total of
$22,500. All but $4,500 of this has been used, and she still owes the supplier $4,000. Of the
food supplies that have been used, most went into snacks that were sold to customers;
however, Shirley ate some of them herself, as on-the-job meals. She estimates that the snacks
she consumed were purchased from the supplier at a cost of approximately $200, and would
have been priced to sell to her customers for approximately $400.7. According to her bank
records, Shirley received $42,300 from her customers and deposited this in the bank during the
period. However, a customer still owes her $500 for snacks provided for a company party held
shortly before the end of the year. The balance in her bank account on December 31 is
$9,750.8. Shirley thinks that she has had fairly successful operations since opening the
business. However, she has no idea how to calculate its net earnings or determine its financial
position.Required:a. Provide Shirley with a statement of earnings for the eight-month period
ended December 31, 2011, and a statement of financial position as of that date.b. Comment on
the snack shop's performance during its first eight months of operations, and its financial
standing as at December 31, 2011.View Solution:
Shirley Sze incorporated Shirley s Snack Shop on April 30 2011

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