Zambrano Wholesale Corporation maintains its records on a cash basis. At the end of each year the company’saccountant obtains the necessary information to prepare accrual basis financial statements. The following cashflows occurred during the year ended December 31, 2018:Cash receipts:From customers $675,000Interest on note 4,000Loan from a local bank 100,000Total cash receipts $779,000Cash disbursements:Purchase of merchandise $390,000Annual insurance payment 6,000Payment of salaries and wages 210,000Dividends paid to shareholders 10,000Annual rent payment 24,000Total cash disbursements $640,000Selected balance sheet information:12/31/17 12/31/18Cash $ 25,000 $164,000Accounts receivable 62,000 92,000Inventory 80,000 62,000Prepaid insurance 2,500 ?Prepaid rent 11,000 ?Interest receivable 3,000 ?Note receivable 50,000 50,000Equipment 100,000 100,000Accumulated depreciation—equipment (40,000) (50,000)Accounts payable (for merchandise) 110,000 122,000Salaries and wages payable 20,000 24,000Note payable –0– 100,000Interest payable –0– ?Additional information:1. On March 31, 2017, Zambrano lent a customer $50,000. Interest at 8% is payable annually on each March 31.Principal is due in 2021.2. The annual insurance payment is paid in advance on April 30. The policy period begins on May 1.3. On October 31, 2018, Zambrano borrowed $100,000 from a local bank. Principal and interest at 6% are dueon October 31, 2019.4. Annual rent on the company’s facilities is paid in advance on June 30. The rental period begins on July 1.Required:1. Prepare an accrual basis income statement for 2018 (ignore income taxes).2. Determine the following balance sheet amounts on December 31, 2018:a. Prepaid insuranceb. Prepaid rentc. Interest receivabled. Interest payable
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Zambrano Wholesale 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, 2018:
Cash receipts:
From customers $675,000
Interest on note 4,000
Loan from a local bank 100,000
Total cash receipts $779,000
Cash disbursements:
Purchase of merchandise $390,000
Annual insurance payment 6,000
Payment of salaries and wages 210,000
Dividends paid to shareholders 10,000
Annual rent payment 24,000
Total cash disbursements $640,000
Selected balance sheet information:
12/31/17 12/31/18
Cash $ 25,000 $164,000
Accounts receivable 62,000 92,000
Inventory 80,000 62,000
Prepaid insurance 2,500 ?
Prepaid rent 11,000 ?
Interest receivable 3,000 ?
Note receivable 50,000 50,000
Equipment 100,000 100,000
Accumulated
Accounts payable (for merchandise) 110,000 122,000
Salaries and wages payable 20,000 24,000
Note payable –0– 100,000
Interest payable –0– ?
Additional information:
1. On March 31, 2017, Zambrano lent a customer $50,000. Interest at 8% is payable annually on each March 31.
Principal is due in 2021.
2. The annual insurance payment is paid in advance on April 30. The policy period begins on May 1.
3. On October 31, 2018, Zambrano borrowed $100,000 from a local bank. Principal and interest at 6% are due
on October 31, 2019.
4. Annual rent on the company’s facilities is paid in advance on June 30. The rental period begins on July 1.
Required:
1. Prepare an accrual basis income statement for 2018 (ignore income taxes).
2. Determine the following balance sheet amounts on December 31, 2018:
a. Prepaid insurance
b. Prepaid rent
c. Interest receivable
d. Interest payable
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