1a. Prepare an accrual basis income statement for 2020 (ignore income taxes).

1b. Determine the following balance sheet amounts on December 31, 2020:

1. Interest receivable
2. Prepaid insurance
3. Prepaid rent

2.

1. Why are accrual-basis financial statements more useful than cash-basis statements? (Ignore the SCF for the moment)
2. The Cash account never appears in an adjusting entry. Why not?
3. From what three actions does a company get assets? (The result of these actions are described on ONE of the financial statements.)
4. Provide four reasons why the unadjusted trial balance could balance, but the books still be wrong.
5. Why do accountants still use double-entry bookkeeping after 500+ years?
6. What is the difference between permanent accounts and temporary accounts? Why do we use both types of accounts?

Medina Corporation keeps its book on a cash basis. At the end of the year, the company's accountant obtains the necessary information to prepare accrual basis financial statements to give to its shareholders. The following cash flows occurred during the year ended December 31, 2020: Cash receipts: From customers Interest on note Issue of common stock Total cash receipts $450,000 3,000 50.000 $503.000 Cash disbursements: Purchase of merchandise Annual insurance payment Payment of salaries Dividends paid to shareholders Annual rent payment Total cash disbursements $220,000 9,000 200,000 6,000 12.000 $427.000 Selected balance sheet information: LOOK AT THE DATES!!!! Cash Accounts receivable Inventory Prepaid insurance Prepaid rent Interest receivable Note receivable Equipment Accumulated depreciation-equipment Accounts payable (for merchandise) Salaries payable Common stock 12/31/20 $25,000 42,000 60,000 2,000 7,000 1,500 50,000 150,000 (40,000) 50,000 20,000 200,000 12/31/19 $101,000 70,000 82,000 ? ? ? 50,000 150,000 (55,000) 62,000 28,000 250,000 Additional information: a. On June 30, 2019, Medina lent a customer $50,000. Interest at 6% is payable annually on each June 30. Principal is due in 2025. b. The annual insurance payment is made in advance on March 31. c. Annual rent on the company's facilities is paid in advance on September 30. 1a. Prepare an accrual basis income statement for 2020 (ignore income taxes). 1b. Determine the following balance sheet amounts on December 31, 2020: 1. Interest receivable 2. Prepaid insurance 3. Prepaid rent