Question

Zambrano Wholesale Corporation maintains its records on a cash basis. At the end of each year the company’s accountant obtains the necessary information to prepare accrual basis financial statements. The following cash flows occurred during the year ended December 31, 2021:

Cash receipts:
From customers	$	650,000
Interest on note		3,600
Loan from a local bank		125,000
Total cash receipts	$	778,600
Cash disbursements:
Purchase of merchandise	$	385,000
Annual insurance payment		5,400
Payment of salaries		205,000
Dividends paid to shareholders		10,000
Annual rent payment		21,500
Total cash disbursements	$	626,900

Selected balance sheet information:

	12/31/2020			12/31/2021
Cash	$	22,500		$	174,200
Accounts receivable		59,500			87,000
Inventory		75,000			59,500
Prepaid insurance		2,000			?
Prepaid rent		10,500			?
Interest receivable		2,700			?
Note receivable		45,000			45,000
Equipment		75,000			75,000
Accumulated depreciation		(37,500	)		(45,000	)
Accounts payable (for merchandise)		107,500			117,000
Salaries payable		19,500			23,100
Notes payable		0			125,000
Interest payable		0			?

Additional information:

1. On March 31, 2020, Zambrano lent a customer $45,000. Interest at 8% is payable annually on each March 31. Principal is due in 2024.
2. The annual insurance payment is paid in advance on April 30. The policy period begins on May 1.
3. On October 31, 2021, Zambrano borrowed $125,000 from a local bank and signed a note promising repayment. Principal and interest at 6% are due on October 31, 2022.
4. Annual rent on the company’s facilities is paid in advance on June 30. The rental period begins on July 1.

Required:

1. Prepare an accrual basis income statement for 2021 (ignore income taxes).
2. Determine the following balance sheet amounts on December 31, 2021:

Prepare an accrual basis income statement for 2021 (ignore income taxes). (Other expenses should be indicated with a minus sign.)

	ZAMBRANO WHOLESALE CORPORATION Income Statement For the Year Ended December 31, 2021

Determine the following balance sheet amounts on December 31, 2021:

	a. Prepaid insurance b. Prepaid rent c. Interest receivable d. Interest payable

Answer 1

From the information given above, I have prepared Journal Entries, Income Statement for the year ended 31 December 2021.

Zambrano Wholesale Corporation Journal Entries for the year ended 31 December 2021. 3 Dr Cr 5 Particulars 1 Cash To Revenue 650000 650000 8 3600 2700 900 2 Cash To Interest Receivable( 1 April 20 to 31 Dec 20) To Interest Income ( 1 Jan 21 to 31 Mar 21) ( Zambrano lent to his customer $45000, interest receivable @8% annually on each 31 march, 45000*8%= 3600 For the period 1 April to 31 Dec = 3600*9/12 = 2700 1 jan to 32 march=3600*3/12 = 900) $ 2700 16 17 3 Interest Receivable( 1 April 21 to 31 Dec 21) To Interest Income ( 1 April 21 to 31 Dec 21) 2700 19 125000 4 Cash To Notes Payable 125000 1250 1250 22 5 Interest Expense 23 To Interest Payable (Loan from bank received on 31 Oct 21, $125000 @ 6% Interest Expense = 125000*6% = 7500 Interest for 1 nov 21 to 31 dec 21= 7500*2/12=1250)

385000 28 29 6 Purchase of Merchandise To Cash 385000 3600 32 1800 33 5400 34 Insurance Prepaid Insurance To Cash ( Annual Insurance is paid on 30th April and the policy begins on 1st May amount paid on 30th April = 3600 Insurance for 1 May 21 to 31 Dec 21 = 5400*8/12= 3600 Prepaid Insurance for 1 Jan 22 to 30 April 22 =5400*4/12=1800) 35 36 37 38 39 40 2000 8 Insurance To Prepaid Insurance as on 31 Dec 20 reversed) 2000 41 205000 205000 42 9 Salaries 43 To Cash 44 45 10 Dividend 46 To Cash 10000 10000 47

21500 02 Nm 18 11 Rent 10750 Prepaid Rent 10750 TO Cash (Annual Rent is paid in advance on 30 June, Rental period begins from 1 july annual rent paid = 21500 Rent for July 21 to 31 Dec 21 = 21500*6/12= 10750 Prepaid Rent for 1 Jan 22 to 30 June 22 =21500*6/12=10750) 5 10500 6 12 Rent To Prepaid Rent (as on 31 dec 20 reversed) 10500

Zambrano Wholesale Corporation Income Statement for the year ended 31 December 2021. Particulars Amount Amount Revenue Cost of Sales Gross Profit 677500 410000 267500 Less: Operating Expenses Salaries 208600 21250 Rent 5600 7500 242950 24550 Insurance Depreciation Operating Income Non Operating Income /(loss) Add: Interest Income less: Interest Expense Net Income 3600 1250 2350 26900

H. 75000 385000 9500 Cost of Sales Opening Balance as on 1 jan 21 Add: Cash Purchases Add: (Increase in Accounts payable for merchandise) Credit purchase Beginning Balance = 107500 Less: Closing Balance - 117000 = 9500 Less: Closing Balance as on 31 Dec 21 Cost of Sales 59500 410000 650000 27500 Revenue Cash Sales Add: Credit Sales (Increase in Accounts Receivable) Beginning Balance = 59500 Less: Closing Balance = 87000 = 27500 Total Revenue 677500 Depreciation for the year Beginning Accumulated Depreciation Balance Less: Closing Accumulated Depreciation Balance Depreciation for the year 37500 45000 7500 205000 3600 Salaries paid in cash Add: Increase in Salaries payable Beginning Balance = 23100 Less: Closing Balance - 19500 = 3600 Total Salaries 208600

Following account balances appear on Balance Sheet as on 31 December 21 Prepaid Insurance Prepaid Rent Interest Receivable Interest Payable 1800 10750 2700 1250