Question

Raintree Corporation maintains its records on a cash basis. At the end of each year the...

Raintree 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 $ 535,000
Interest on note 3,350
Issue of common stock 50,000
Total cash receipts $ 588,350
Cash disbursements:
Purchase of merchandise $ 237,000
Annual insurance payment 7,000
Payment of salaries 197,000
Dividends paid to shareholders 9,000
Annual rent payment 17,000
Total cash disbursements $ 467,000

  
Selected balance sheet information:

12/31/2020 12/31/2021
Cash $ 42,000 $ 118,000
Accounts receivable 59,000 104,000
Inventory 77,000 116,000
Prepaid insurance 4,000 ?
Prepaid rent 9,000 ?
Interest receivable 1,675 ?
Note receivable 67,000 67,000
Equipment 184,000 184,000
Accumulated depreciation—equipment (57,000 ) (89,000 )
Accounts payable (for merchandise) 67,000 96,000
Salaries payable 37,000 62,000
Common stock 370,000 420,000
Dividends 0 14,000

  
Additional information:

  1. On June 30, 2020, Raintree lent a customer $67,000. Interest at 5% is payable annually on each June 30. Principal is due in 2024.
  2. The annual insurance payment is made in advance on March 31.
  3. Annual rent on the company’s facilities is paid in advance on September 30.

  
Required:
1. Prepare an accrual basis income statement for 2021 (ignore income taxes).

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

Business   Accounting   
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Answer #1
1
Sales Revenue 580000 535000+104000-59000
less: Cost of Goods sold 227000 77000+(237000+96000-67000)-116000
Gross profit 353000
Less: Operating expenses
Insurance 9250 7000+4000-(7000*3/12)
Salary 222000 197000+62000-37000
Rent 13250 (17000+9000-(17000*9/12))
Depreciation 32000 276500 89000-57000
Operating income 76500
Add: interest 3350 3350+(67000*5%*6/12)-1675
Net income 79850
2
The second part could not be solved as the provided information is not sufficient
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