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Question: fred gowen opened gowen retail sales as a sole proprietorship...

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Fred Gowen opened Gowen Retail Sales as a sole proprietorship and recorded the following transactions during his first month in business:

1. Purchased $50,000 of fixed assets, putting 15% down and borrowing the remainder.

2. Sold 1,000 units of product at an average price of $45 each. Half of the sales were on credit, none of which had been collected as of the end of the month.

3. Recorded cost of goods sold of $21,000 related to the above sales.

4. Purchased $35,000 worth of inventory and paid cash.

5. Incurred other expenses (including the interest from the loan) of $5,000, all of which were paid in cash.

6. Fred's tax rate is 32%. (Taxes will be paid in a subsequent period.)

A.) What will the business report as net income for its first month of business? (Hint: Write out an income statement and enter revenue, cost, and expense. Then calculate tax and net income.) $_________

B.) List the flows of cash in and out of the business during the month. Show inflows as positives and outflows as negatives (using sign "-"). Sum to arrive at a "Net Cash Flow" figure.

Cash Flows
Purchase of Assets $
Proceeds from Loan $  
Cash from Sales $  
Purchase of Inventory $  
Other Expenses $  
Net Cash Flow $  
  1. Should Fred pay more attention to net income or cash flow?
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