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
$\begin{array}{l}\text { Cash receipts: }\\\begin{array}{lr}\text { From customers } & \$ 450,000 \\\text { Interest on note } & 3,000 \\\text { Issue of common stock } & 50,000 \\\quad \text { Total cash receipts } & \$ 503,000\end{array}\end{array}$

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