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.

Answer 1

McGuire Corporation
Income Statement
for the year ending Dec 31 , 2020
		$
Sales		328000
less: Cost of goods sold		(173500)
Gross profit		154500
Operating expenses
Salaries	77800
Rent	8200
Miscellaneous expense	11600
Depreciation expense	3750
Total operating expense		(101350)
Other income and expense
Interest on notes payable	2880	(2880)
Income from operations		50270

explanation

Sales
	$
Cash collected from customers	310000
balance of A/R year end	18000
sales made during the year	328000

cost of goods sold
purchase on merchandise(cash)	190000
purchased on credit	28700
balance at year end	45200
cost of goods sold	173500	(190000+28700-45200)

Salaries expense
cash paid	73000
accrued salaries	4800
	77800

Rent
cash paid	10000
prepaid rent	-1800	(2700/3)*2
rent for 2020	8200

Dep per annum	3750
37500/10

Interest on notes payable
Principal	32000
rate	12%
interest for CY	32000*12%
	3840
for 9 months( april-dec)	3840*9/12
	2880

	McGuire Corporation
	Balance sheet
	as on Dec31, 2020
	Assets	$
	Current Assets
	Cash	82400
	Inventory	45200
	Accounts Receivable	18000
	Prepaid Rent	1800
A	Total Current Assets	147400
	Fixed Assets
	Office Equipment	37500
	less: Acc depreciation	(3750)
B	Total Fixed Assets	33750
	Total Assets(A+B)	181150
	Liabilities	$
	Current Liabilities
	Accounts Payable	28700
	Notes Payable( 1 year note)	32000
	Interest Payable	2880
	Accrued Salaries	4800
C	Total Current Liabilities	68380
	Owner's Equity
	Capital	62500
	Retained earnings	50270
D	Total Owner's equity	112770
	Total Liabilities and Owner's Equity	181150
	(C+D)