Problem - Transaction Descriptions:
The company is formed on January 1, Year 1 and the following are transactions that occurred during Year 1:
1) On January 1 the company issues 10,000 shares of $2.50 par value stock for $350,000
2) On January 1 the company borrows $250,000 due in 20 years with interest payments due on December 31 each year at an interest rate of 7%.
3) On January 1 the company purchases new equipment for $275,000. Of this purchase amount $100,000 was in cash and the rest was in a mortgage. The mortgage carries an interest rate of 5% and interest payments are due on January 1 every year. The principal of the loan is not due until maturity. The equipment has a useful life of 20 years and will be depreciated straight-line with a $15,000 salvage value.
4) During the year the company buys $125,000 of raw materials on account. At year-end it still owes its suppliers $10,000.
5) During the year $110,000 of raw materials was requisition for production.
6) Manufacturing employees earned $180,000 in salaries during the year and by year-end had been paid for all salaries except the last two weeks in December which totaled $7,200.
7) The company incurred $25,000 in utilities expense during the year. Of this amount $20,000 applied to the manufacturing facility and the rest to the administrative facility. All utilities had been paid except for December's bill which totaled $2,500.
8) The company rents its facility and the monthly rental is $10,000 payable in advance on the last day of the month. The first month's rent was paid upon signing the contract on January 1. Of the total 80% applies to the manufacturing portion of the facility and the remaining 20% applies to the administrative portion.
9) The company incurred and paid for $45,000 in other non-manufacturing operating expenses.
10) Record depreciation for the period
11) During the period the company completed $394,000 of inventory and transferred it to finished goods.
12) At the end of the year a count of ending finished goods showed a total of $30,000 in ending inventory.
13) During the year the company had sales of $550,000, all on account. The ending balance in accounts receivable at the end of the year was $90,000.
14) Record interest expense
15) Assume a tax rate of 40% and record tax expense. Assume all taxes are paid in cash during the year.
Required:
1) Prepare a list of all journal entries that should be recorded during Year 1. You do not have to prepare closing entries.
2) Prepare the income statement for the year.
3) Prepare the cash flow statement for the year - you may use either the direct or indirect method for preparing the operating section of the statement.