Analysis of Transactions and Preparation of Income Statement and Balance Sheet

Note: Refer to the information for Moulton Corporation as of December 31, Year 12, in Chapter 2, Problem 2.13.

Moulton Corporation opened for business on January 1, Year 13. It uses the accrual basis of accounting. Transactions and events during Year 13 were as follows:

During Year 13: Purchased inventory on account costing $1,100,000 from various suppliers.

During Year 13: Sold merchandise to customers for $2,000,000 on account.

During Year 13: The cost of merchandise sold to customers totaled $1,200,000.

During Year 13: Collected $1,400,000 from customers for sales made previously on account.

During Year 13: Paid merchandise suppliers $950,000 for purchases made previously on account.

During Year 13: Paid various suppliers of selling and administrative services $625,000. The firm consumed all of the benefits of these services during Year 13.

Acquired equipment on December 31 costing $80,000 and signed a 6% note payable to the supplier. The note is due on June 30, Year 13. The equipment has an estimated useful life of 5 years. On June 30,Year 13: repaid the note payable to a supplier with interest. (see transaction (7) in Chapter 2, Problem 2.13)

Borrowed $300,000 from a bank on December 31, Year 12. The loan bears interest at an annual rate of 8% and is due in five years. The interest is payable on January 1 of each year, beginning January 1, Year 14, and the $300,000 amount borrowed is due on December 31, Year 17. December 31, Year 13: Recognized interest on the long-term bank loan. (see transaction (6) in Chapter 2, Problem 2.13)

December 31 Year 12 paid $12,000 for a one-year insurance policy on the land and building. The insurance coverage begins January 1. December 31,Year 13: Recognized insurance expense for Year 13. (see transaction (5) in Chapter 2, Problem 2.13)

Acquired for cash land costing $50,000 and a building costing $450,000. The building has an expected useful life of 25 years beginning on January 1, Year 13. December 31, Year 13: Recognized depreciation expense for Year 13 (see transaction (2) and (7) in Chapter 2, Problem 2.13)

December 31, Year 13: Recognize income tax expense and income tax payable for Year 13. The income tax rate is 40%. Assume that income taxes for Year 13 are payable by March 15, Year 14.

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a. Using the provided T-accounts in the attached spreadsheet, enter the balances in balance sheet accounts on January 1, Year 13. (see transaction Chapter 2, Problem 2.13and the effects of the 11 transactions above)

b. Prepare an income statement for Year 13.