Question

McGuire Corporation began operations in 2021. The company purchases computer equipment from manufacturers and then sells to retail stores. During 2021, the bookkeeper used a check register to record all cash receipts and cash disbursements. No other journals were used. The following is a recap of the cash receipts and disbursements made during the year.

Cash receipts:
Issue of common stock	$	62,500
Collections from customers		310,000
Borrowed from local bank on April 1, note signed requiring
principal and interest at 12% to be paid on March 31, 2022		32,000
Total cash receipts	$	404,500
Cash disbursements:
Purchase of merchandise	$	190,000
Payment of salaries		73,000
Purchase of office equipment		37,500
Payment of rent on building		10,000
Miscellaneous expense		11,600
Total cash disbursements	$	322,100

You are called in to prepare financial statements at December 31, 2021. The following additional information was provided to you:

1. Customers owed the company $18,000 at year-end.
2. At year-end, $28,700 was still due to suppliers of merchandise purchased on credit.
3. At year-end, merchandise inventory costing $45,200 still remained on hand.
4. Salaries owed to employees at year-end amounted to $4,800.
5. On December 1, $2,700 in rent was paid to the owner of the building used by McGuire. This represented rent for the months of December through February.
6. The office equipment, which has a 10-year life and no salvage value, was purchased on January 1, 2021. Straight-line depreciation is used.

Required:

Prepare an income statement for 2021 and a balance sheet as of December 31, 2021.

Next

Answer 1

Answer:

a) Prepare the income statement in the following:

Mc Guire corporation
Income statement for the year ending Dec31 2020
Particulars	Amount	Amount
Sales	$ 3,10,000+$18,000 =$ 3,28,000	$ 3,28,000
less: cost of goods sold	= purchase on merchandise+purchased on credit +balance at year end =$ 1,90,000+$ 28,700+$ 45,200 =$ 1,73,500	($1,73,500)
Gross profit	=$ 3,28,000-($1,73,500) = $1,54,500	$1,54,500
Operating exp:
Salaries	=cash paid+accrued =$ 73,000+$ 4,800 =$ 77,800
Rent	=cash +prepaid =$ 10,000 - $1,800[($ 2,700/3)*2] =$ 8,200
Depreciation	=$ 37,500 /10 =$ 3,750
Miscellaneous exp	$ 11,600
Total expenses	$ 77,800+$ 8,200+$ 3,750+$ 11,600 =$ 1,01,350	($1,01,350)
Other incomes and expense
Interest on notes payable	=$ 32,000*12%*9/12 =$ 3,840*9/12 =$ 2,880	($ 2,880)
Income from operations	$1,54,500 - ($1,01,350) - ($ 2,880) = $ 50,270	$ 50,270

b) Prepare the balance sheet in the following:

Mc Guire corporation
Balance sheet as on Dec 31,2020
Particulars	Amount	Amount
Assets
Current Assets:
Cash	$ 82,400
Inventory	$ 45,200
Accounts receivable	$ 18,000
Prepaid rent	$ 1,800
Total current assets	$ 82,400+$ 45,200+$ 18,000+$ 1,800 =$ 1,47,400	$ 1,47,400
Fixed assets:
Office equipment	$ 37,500
Less :Acc dep	$ 3,750
Total fixed assets	$ 37,500 - $ 3,750 =$ 33,750	$ 33,750
Total assets	$ 1,47,400 + $ 33,750 = $ 1,81,150	$ 1,81,150
Liabilities
Current liabilities:
Accounts payable	$ 28,700
Notes payable	$ 32,000
Interest payable	$ 2,880
Accrued salaries	$ 4,800
Total current liabilities	$ 28,700 + $ 32,000 + $ 2,880+$ 4,800 = $ 68,380	$ 68,380
Owner's equity
Capital	$ 62,500
Retained earnings	$ 50,270
Total Owner's equity	$ 62,500 + $ 50,270 =$ 1,12,770	$ 1,12,770
Total liabilities and equity	$ 68,380 + $ 1,12,770 = $ 1,81,150	$ 1,81,150