Raintree Corporation Maintains Its Records on a Cash Basis

question 46

Essay

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, 2009:
Selected balance sheet information:
Additional information:
1. On June 30, 2008, Raintree lent a customer $50,000. Interest at 6% is payable annually on each June 30. Principal is due in 2012.
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 2009 (ignore income taxes).
2. Determine the following balance sheet amounts on December 31, 2009:
a. Interest receivable
b. Prepaid insurance
c. Prepaid rent
$\begin{array}{l}\text { Cash receipts: }\\\begin{array}{lr}\text { From customers } & \$ 450,000 \\\text { Interest on note } & 3,000 \\\text { Issue of common stock } & 50,000 \\\quad \text { Total cash receipts } & \$ 503,000\end{array}\end{array}$

$\begin{array}{lr}\text { Cash disbursements: } & \\\text { Purchase of merchandise } & \$ 220,000 \\\text { Annual insurance payment } & 9,000 \\\text { Payment of salaries } & 180,000 \\\text { Dividends paid to shareholders } & 6,000 \\\text { Annual rent payment } & 12,000 \\\quad \text { Total cash disbursements } & \$ 427,000\end{array}$ $$\begin{array}{l}\begin{array} { l r r } &12/31/08&12/31/09\\\text { Cash }&\$25,000&\$101,000\\\text { Accounts receivable } & 42,000 & 70,000 \\\text { Inventory } & 60,000 & 82,000 \\\text { Prepaid insurance } & 2,000 & ? \\\text { Prepaid rent } & 7,000 & ? \\\text { Interest receivable } & 1,500 & ? \\\text { Note receivable } & 50,000 & 50,000 \\\text { Equipment } & 150,000 & 150,000 \\\text { Accumulated depreciation-equipment } & ( 40,000 ) & ( 55,000 ) \\\text { Accounts payable (for merchandise) } & 50,000 & 62,000 \\\text { Salaries payable } & 20,000 & 28,000 \\\text { Common stock } & 200,000 & 250,000\end{array}\end{array}$$

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Definitions:

Hazan and Shaver

Psychologists who developed the theory that romantic love in adulthood follows the same attachment patterns individuals have as children with their caregivers.

Adults

Individuals who have reached the age of majority, typically defined in terms of legal responsibilities, physiological development, and social standing.

Romantic Love

A profound and emotional state of attachment and affection towards a partner.

Bowlby and Ainsworth

Psychologists known for their work in attachment theory, explaining the importance of early emotional bonds between a child and their primary caregiver.