Question

McGuire Corporation began operations in 2018. The company purchases computer equipment from manufacturers and then sells to retail stores. During 2018, 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:
Sale of common stock	$	67,500
Collections from customers		320,000
Borrowed from local bank on April 1, note signed requiring
principal and interest at 12% to be paid on March 31, 2019		34,000
Total cash receipts	$	421,500
Cash disbursements:
Purchase of merchandise	$	195,000
Payment of salaries and wages		76,000
Purchase of office equipment		40,500
Payment of rent on building		10,500
Miscellaneous expenses		12,200
Total cash disbursements	$	334,200

You are called in to prepare financial statements at December 31, 2018. The following additional information was provided to you:

1. Customers owed the company $19,000 at year-end.
2. At year-end, $29,400 was still due to suppliers of merchandise purchased on credit.
3. At year-end, merchandise inventory costing $46,400 still remained on hand.
4. Salaries and wages owed to employees at year-end amounted to $5,100.
5. On December 1, $3,150 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, 2018. Straight-line depreciation is used.

Required:

Prepare an income statement for 2018 and a balance sheet as of December 31, 2018. (For Balance Sheet only, items to be deducted must be indicated with a negative amount.)

Answer 1

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Sales Revenue	$320,000+$19,000		$   339,000
Cost of Goods Sold:
Cash paid for purchase of merchandise		$     195,000
Add: Due at the end of the period		$       29,400
Total Purchases		$     224,400
Less: Ending Inventory		$     (46,400)
Cost of Goods Sold		$     178,000
Prepaid Rent	$3,150*2/3	$          2,100
Rent Expense	$10,500-$2,100	$          8,400
Depreciation Expense	$40,500/10	$          4,050
Interest Expense	$34,000*12%*9/12	$          3,060
Salaries and wages Expense	$76,000+$5,100	$       81,100
Income Statement:
Sales revenue		$     339,000
Cost of goods sold		$   (178,000)
Gross profit		$     161,000
Operating expenses:
Salaries and wages	$                         81,100
Rent	$                            8,400
Depreciation	$                            4,050
Miscellaneous	$                         12,200
Total operating expenses		$   (105,750)
Operating income		$       55,250
Other expense:
Interest		$       (3,060)
Net income		$       52,190
Balance Sheet:
Current assets:
Cash ($421,500-$334,200)		$       87,300
Accounts receivable		$       19,000
Prepaid rent		$          2,100
Inventory		$       46,400
Total current assets		$     154,800
Office equipment	$                         40,500
Less: Accumulated depreciation	$                         (4,050)	$       36,450
Total assets		$     191,250
Liabilities and Shareholders' Equity:
Current liabilities:
Accounts payable		$       29,400
Salaries and wages payable		$          5,100
Note payable		$       34,000
Interest payable		$          3,060
Total current liabilities		$       71,560
Shareholders’ equity:
Common stock	$                         67,500
Retained earnings	$                         52,190
Total shareholders’ equity		$     119,690
Total liabilities and shareholders’ equity		$     191,250	$               -