Question

Road Runner Corporation operated a small courier business under ideal conditions. On January 1, 2021, Road Runner began operations by acquiring a delivery truck. In order to purchase the truck, Road Runner issued common shares. The delivery truck had a useful life of nine years, at the end of which time it would be worthless. The economy's interest rate was 3%. At the time of purchase, Road Runner anticipated the cash flows from the delivery truck would be $4,100 in a good year, and only $850 in a bad year. In each year, Road Runner estimated a 35% chance of a good year, and a 65% chance of a bad year. The events of any one year had no impact on the probability of a good or bad year in the future. Road Runner's customers paid on December 31 of each year. Road Runner did not spend any of the cash received; instead, Road Runner saved the cash in a bank account that paid interest of 3% at the end of each year (not including the year it was deposited). REQUIRED: a) Assume that 2021 was a good year. Prepare an income statement and balance sheet for Road Runner Corporation for the year ended December 31, 2021. Continue assuming that 2021 was a good year, now assume that 2022 was a bad year. Prepare an income statement and balance sheet for Road Runner Corporation for the year ended December 31, 2022. b)

Answer 1

.

a)	Income Statement for the year ended 2021
	Particular	Amount
	Revenue from operations	$                                4,100
	Other Income	$                                       -
	Total Revenue	$                                4,100
	Less:- Depretiation (900/9)	$                                  -100
	Net profit	$                                4,000
	Balance sheet (31/12/2021)
	Particular	Amount
	Equity & Liabilities
	Share capital (900)	$                                    900
	Other Equity (Net profit)	$                                4,000
	Total Equity and liability	$                                4,900
	Assets
	Property , plant & equipment
	Truck = 900 - 100(depretiation)	$                                    800
	Bank	$                                4,100
	Total Assets	$                                4,900
b)	Income Statement for the year ended 2022
	Particular	Amount
	Revenue from operations	$                                    850
	Other Income (4100 * 3%)	$                                    123
	Total Revenue	$                                    973
	Less:- Depretiation (900/9)	$                                  -100
	Net profit	$                                    873
	Balance sheet (31/12/2022)
	Particular	Amount (31/12/2022)	Amount (31/12/2022)
	Equity & Liabilities
	Share capital (900)	$                                    900	900
	Other Equity (Net profit) (4000+ 873)	$                                4,873	4000
	Total Equity and liability	$                                5,773	4900
	Assets
	Property , plant & equipment
	Truck = 800 - 100(depretiation)	$                                    700	800
	Bank (4100+ 873)	$                                4,973	4100
	Total Assets	$                                5,673	4900
Note:-	Since the question doesn’t specify the purchase amount of truck , we Assume the Truck purchase at $900