a. Explanation Current Operating Liabilities: Current operating liabilities are the obligations arising from the firm’s primary business operations, and are for short-term. Journalizing: Journalizing is the process of recording the transactions of an organization in a chronological order. Based on these journal entries recorded, the accounts are posted to the relevant ledger accounts. Accounting rules for journal entries: To increase balance of the account: Debit assets, expenses, losses and credit all liabilities, capital, revenue and gains. To decrease balance of the account: Credit assets, expenses, losses and debit all liabilities, capital, revenue and gains. Following is the Journal entry for recoding merchandise inventory purchased: Date Particulars Post ref. Debit ($) Credit ($) September 1 Inventory 65,000 Notes Payable Account 65,000 ( being inventory purchased ) Table (1) Inventory is an asset for the company. Current asset is increasing as the company is purchased inventory worth $65,000. Notes payable is a liability for the company which needs to be paid in future. As the company is purchasing inventory on credit basis, the operating liability is getting increased therefore credited. Following is the Journal entry for recoding merchandise inventory purchased: Date Particulars Post ref. Debit ($) Credit ($) January 16 Inventory 391,000 Accounts Payable Account 391,000 ( being inventory costing $391,000 purchased ) Table (2) Inventory is an asset for the company. Current asset is increasing as the company is purchased inventory worth $391,000. As the company is purchasing inventory on credit basis, the operating liability is getting increased therefore credited. Following is the Journal entry for recoding merchandise inventory sold: Date Particulars Post ref. Debit ($) Credit ($) 12 th Oct. Accounts Receivables 128,000 Cost of Goods Sold Account 80,000 To Sales Account 128,000 Inventory Account 80,000 ( being goods sold )) Table (3) Accounts Receivables is a current asset for the company. As the cash will be received indicating increase in current asset account hence debited with $128,000. Cost of goods sold is an expense for the company. Goods costing $80,000 sold therefore debited with the same. Sales generate income for the company. Price at which goods are being sold is $128,000, hence credited. Inventory is a current asset for the company. Inventory is being sold which indicates decrease in inventory stock hence credited. Following is the journal for recording cash received for sold gift cards by the company: Date Particulars Post ref. Debit ($) Credit ($) 16 th Oct. Cash Account 4,000 Gift Cards Accounts 4,000 ( being cash received for gifts cards sold ) Table (4) Cash is an asset for the company. Cash is being received for the gift cards sold by the company worth $4,000, indicating increasing current asset hence debited. Gift cards generates income as cash is being received for gift cards being sold hence it is credited with $4,000. Following is the journal entry passed for payment of inventory purchased: Date Particulars Post ref. Debit ($) Credit ($) November 16 Accounts Payable 391,000 Cash account 391,000 ( being cash paid for the items purchased earlier ) Table (5) Accounts payable is current operating Liability andit is getting decreased therefore it is being debited with $391,000... b. To determine To prepare: The income statement for the current fiscal year.