Question

In 2019, two friends, Boomer and Sooner opened an OU souvenir store on Campus Corner. During the year, the owners recorded the following cash receipts and payments:

Cash receipts:
Issue of common stock	$	55,000
Collections from customers		295,000
Borrowed from local bank on April 1, note signed requiring
principal and interest at 12% to be paid on March 31, 2020		29,000
Total cash receipts	$	379,000
Cash payments:
Purchase of merchandise	$	182,500
Payment of salaries		68,500
Purchase of office equipment		33,000
Payment of rent on building		9,250
Miscellaneous expense		10,700
Total cash payments	$	303,950

Boomer and Sooner ask you to prepare the December 31, 2019, financial statements. Additional information was provided to you:

1. Customers owed the company $16,500 at year-end.
2. At year-end, $27,650 was still due to suppliers of merchandise purchased on credit.
3. At year-end, merchandise inventory costing $43,400 still remained on hand.
4. Salaries owed to employees at year-end amounted to $4,350.
5. On December 1, $2,250 in rent was paid to the owner of the building used by the company. 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, 2019. Straight-line depreciation is used.

Required:

Prepare an income statement for 2019 and a balance sheet as of December 31, 2019.

Answer 1

OU souvenir store Income Statement For the year ended December 31, 2019 $ 311,500 Sales Less : Operating expenses Cost of Goods Sold Salaries expense Rent expense Miscellaneous expense Interest expense Depreciation expense Net Income $(166,750) $ (72,850) $ (7,750) $ (10,700) $ (2,610) $ (3,300) $(263,960) $ 47,540

OU souvenir store Balance sheet on December 31, 2019 Assets Current aasets Cash $ 75,050 Accounts Receivables $ 16,500 Inventory $ 43,400 Prepaid Rent $ 1,500 Total Current Assets $ 136,450 Plant & Equipment Office Equipment $ 33,000 Less : Accumulated Depreciation Total Plant & Equipment Total Assets Liabilities and Shareholder's Equity $ 29,700 $ 166,150 Current Liabilities Accounts payable Salaries payable Notes payable Interest payable Total Current liabilities Shareholder's equity $ 27,650 $ 4,350 $ 29,000 $ 2,610 $ 63,610 $ 55,000 $ 47,540 Common Stock Reatined Earnings Total Shareholder's Equity Total Liabilities & Shareholder's Equity $ 102,540 $ 166,150

Working Notes: Sales : Collections from customers $ 295,000 Add : Accounts receivables at the year end $ 16,500 Total Sales $ 311,500 Purchases : Cash paid for the purchase of merchandise $ 182,500 Add : Accounts payable at the year end $ 27,650 Total purchases $ 210,150 Cost of Goods Sold: Merchandise purchase Less : Ending merchandise inventory Cost of Goods Sold $ 210,150 $ (43,400) $ 166,750 Salaries expenses Cash paid for the salaries Add : Salaries payable at the year end $ $ $ 68,500 4,350 72,850

Prepaid Rent: Prepaid Rent = $ 2250/3 +2= $ 1,500 Rent Expense Payment of rent on building Add: Prepaid Rent Rent expense $ $ $ 9,250 (1,500) 7,750 Depreciation expense Cost of Equipment Less : Salvage value Depreciable cost of equipment $ 33,000 $ - $ 33,000 Life of the equipment 10 years Depreciation per year = $ 33000 /10 = $ 3,300

Interest expense $ Principal borrowed Rate of Interest 29,000 12% Interest expense = $ 29000 *12% * 9/12 = $ 2,610 Interest payable : As the interest is paid on March 31, 2020, the total interest expense is equal to the interest payable at the year end. Interest payable = $ 2610 Cash balance at the year end Total cash receipts Less: Total Cash payments Ending cash Balance $ 379,000 $(303,950) $ 75,050 Retained earnings : $ 47,540 Current year income Less : Dividend Retained earnings ending balance S $ 47,540