1. Prepare all journal entries to record the information for 2020. Also prepare any necessary adjusting entries.

2. Prepare a trial balance as of December 31, 2020. There is no need to show your ledger T-accounts; however, preparing and posting toT-accounts may aid in the preparation of the trial balance.

3. Prepare a classified income statement for the year ended December 31, 2020, and a classified balance sheet as of December 31, 2020.

McCadden Company started business on January 1, 2020. The following transactions and events occurred in 2020 and 2021. For simplicity, information for sales, inventory purchases, collections on account, and payments on account is given in summary form at the end of each year.

Jan 1 2020

• Issued 100,000 shares of $1-par common stock to investors at $20 per share.

• Purchased a building for $550,000. The building has a 25-year expected useful life and a $50,000 expected salvage value. McCadden uses the straight-line method of depreciation.

• Leased equipment under a five-year lease. The five lease payments of $30,000 each are to be made on December 31 of each year. The cash price of the equipment is $113,724. This lease is accounted for as a capital lease with an implicit interest rate of l0%. The equipment has a five-year useful life and zero expected salvage value; McCadden uses straight-line depreciation with all of its equipment.

Feb 1

• Borrowed $1.5 million from Burtone Bank. The loan bears an 11% annual interest rate. Interest is to be paid each year on February 1. The principal on the loan will be repaid in four years.

March 1

• Purchased 40,000 shares of Larry Company for $35 per share. McCadden classifies this as an investment in trading securities. These securities are reported as a current asset.

July 15

• Purchased 50,000 shares of Frances Ann Company for $21 per share. McCadden classifies this as an investment in available-for-sale securities. These securities are reported as a long-term asset.

Nov 17

• Declared a cash dividend of $0.25 per share, payable on January 15, 2021.

Dec 31

• Made the lease payment.

• The Larry Company shares had a market value of $30 per share.

• The Frances Ann Company shares had a market value of $27 per share.

Summary

• Sales for the year (all on credit) totaled $800,000. The cost of inventory sold was $350,000.

• Cash collections on credit sales for the year were $370,000.

• Inventory costing $420,000 was purchased on account. (McCadden Company uses the perpetual inventory method.)

• Payments on account totaled $400,000.