Question

Please explain and show steps. Thank you.

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, 2021:

Cash receipts:
From customers	$	705,000
Interest on note		4,480
Loan from a local bank		95,000
Total cash receipts	$	804,480
Cash disbursements:
Purchase of merchandise	$	396,000
Annual insurance payment		6,720
Payment of salaries		216,000
Dividends paid to shareholders		10,000
Annual rent payment		27,000
Total cash disbursements	$	655,720

Selected balance sheet information:

	12/31/2020			12/31/2021
Cash	$	28,000		$	176,760
Accounts receivable		65,000			98,000
Inventory		86,000			65,000
Prepaid insurance		3,100			?
Prepaid rent		11,600			?
Interest receivable		3,360			?
Note receivable		56,000			56,000
Equipment		130,000			130,000
Accumulated depreciation		(43,000	)		(56,000	)
Accounts payable (for merchandise)		113,000			128,000
Salaries payable		20,600			25,200
Notes payable		0			95,000
Interest payable		0			?

Additional information:

1. On March 31, 2020, Zambrano lent a customer $56,000. Interest at 8% is payable annually on each March 31. Principal is due in 2024.
2. The annual insurance payment is paid in advance on April 30. The policy period begins on May 1.
3. On October 31, 2021, Zambrano borrowed $95,000 from a local bank and signed a note promising repayment. Principal and interest at 6% are due on October 31, 2022.
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 2021 (ignore income taxes).
2. Determine the following balance sheet amounts on December 31, 2021:

Answer 1

solution : 1   Zambrano Wholesale Corporation

INCOME STATEMENT FOR THE YEAR ENDED 31ST DEC.2021

		Amount($)
REVENUE:		7,38,000
COST OF SALES		(4,97,000)
GROSS PROFIT		2,41,000
LESS: OPERATING EXPENSES
SALARIES	220,600
Rent	25,100
insurance	7580
Deprication	13,000	2,66,280
NON OPERATING INCOME /(LOSS)		(25,280)
ADD: INTEREST INCOME	4480
LESS: IN TEREST EXP	(950)	3530
NET LOSS		(21,750)

WORKING NOTES

REVENUE

CASH SALE =705,000

ADD: CREDIT SALES (INCREASE IN ACCOUNTS RECEIBALE) = 33,000

(98,000 -65000 =33,000)

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TOTAL REVENUE = 7,38,000

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COST OF SALES

Opening Bal. as on 1Jan21 (inventory)   =86,000

Add: cash purchase =396,000

Add:increase in accounts Payable [128,000 -113000] =15,000

COST OF SALES = 4,97,000

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SALARIES :

SALARIES IN CASH =  216,000

ADD: INCR. SALARIES PAYABLE(25,200 -20,600) = 4600

TOTAL SALARIES = 220,600

----------------------------------------------------------------------------------------------------------------------------Depreciation for the year(56000 -43000) = 13,000

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SOLUTION 2

ACCOUNTS BALANCE

PREPAID INUSRANCE =2240

PREPAID RENT = 13,500

INTEREST RECEIVABLE = 3600

INTEREST PAYABLE = 950

from the information given first i doing journal entries for understanding purpose then we make income statemEnt and calculating remaining accounts balances

s.n	Journal Entries	DEBIT	CREDIT
1	Cash	705,000
	Revenue		705,000
2	cash	4480
	interest receivable(1 april 20 to 31dec20)		3360
	interest income(1jan21 to 31Mar 21)		1120
	(Zambrano lent to his customer$ 56,000 , interest receivable@8%annualy each 31 st march,56000 x8% =4480 For the period of 1 april 20 to 31dec20= 4480x9/12 =3360 For the period1jan21 to 31Mar 21= 4480 x 3/12 =1120)
3	interest Receivable(1 april 20 to 31dec20)	3600
	interest income(1 april 20 to 31dec20)		3600
4	cash	95,000
	notes payable		95,000
5	interest expenses	950
	interst payable		950
	(loan from bank received on 31st oct 95,000 x6%=5700 interest for 1st nov to 31st dec = 5700x2/12= 950)
6	purchase of merchandise	396,000
	cash		396,000
7	insurance	4480
	prepaid insurance	2240
	cash		6720
	(Annual insurance is paid on 30th april &policy beganon 1st may amount paid on 30 april = insurance for 1st may to 31st dec 21 =6720 x 8/12 =4480 prepaid insurance = 6720 x4/12 = 2240
8	insurance	3100
	prepaid insurance(on 31st Dec 20 reversed)		3100
9	salaries	216,000
	cash		216,000
10	Dividend	10,000
	cash		10,000
11	rent	13,500
	prepaid rent	13,500
	cash		27,000
	(Annual rent is paid in advance on June 30.,rental period is began from 1st july annual rent paid =27,000 Rent for1 july to 31 dec2021=27000x6/12=13,500 prepaid rent for 1jan22 to 30 june 22=27000 x6/12 =13,500)
12	rent	11600
	prepaid rent (as on 31dec 20 reversed)		11600

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