Pre-closing trial balance of Tracey's Toy Shop for the ELEVEN MONTHS ended 30 November 2007

DR CR
Share capital 87 250
Retained profit 41 500
Dividend 17 900
Equipment at cost 92 000
Bank 52 531
Trade receivables 34 400
Inventory 28 000
Stationery Asset 2 810
Loan: Fidelity Bank (12%) 60 000
Trade payables 10 750
Sales income 198 291
Cost of sales expense 89 750
Interest expense 6 600
Telephone expense 10 300
Salaries & wages expense 31 000
Rent income 11 000
Electricity expense 16 000
Rent expense 27 500
408 791 408 791

The following transactions occurred during December 2007.

1. On 1 December 2007 the business borrowed an additional R30 000 from Fidelity Bank.

2. On 1 December 2007 the business purchased a computer and printer on credit from Discount Computer Suppliers for R15 000.

3. On 1 December 2007 Tracey paid the monthly rent of R2 500 for the month of December 2007. Tracey sub-lets part of her premise at a monthly rental of R1 000 per month. She received the December rental on 1 December 2007.

4. On 1 December 2007 Tracey transferred her motor vehicle, which she reliably estimated to be worth R45 000, to the business to be used for deliveries.

5. On 6 December 2007 the business purchased 100 toy model aeroplanes with a total cost of R27 000 on account from William's Wholesale Toys.

6. On 15 December 2007 the business sold 10 of the model aeroplanes bought from William's Wholesale Toys for R500 each on credit.

7. On 29 December 2007 Tracey discovered that there was no stationery left in the stationery cupboard so she purchased additional stationery for R1 200 cash from the Same Day Stationery Suppliers. By 31 December 2007 R200 of this stationery had been used.

8. On 31 December 2007 the business paid Fidelity Bank the interest owing for December and repaid R10 000 of the loan.

9. By 31 December 2007, the telephone bill for the month, amounting to R2 100, had been received but had, as yet, not been paid.

You are required to:

1. Identify the type of business decision that resulted in each of the following transactions and provide a brief explanation of the type of decision made:

1.1. Transaction 1
1.2.Transaction 2.

2. Show how the following transactions affect the Assets, Equity and Liabilities of the business. You need to indicate whether the element has increased or decreased and provide the relevant amount and account that would be affected.

2.1. Transaction 3
2.2. Transaction 4
2.3.Transaction 6

3. Prepare the following ledger accounts in the general ledger of Tracey's Toy Shop for December 2007. You are required to close off or balance the accounts as at 31 December 2007.

3.1. Loan
3.2. Sales income
3.3.Stationery Asset
3.4.Interest Expense

4. Prepare the statement of comprehensive income for Tracey's Toy Shop for the year ended 31 December 2007.

5. Briefly explain what you understand by the term "inventory".