Cayman Corporation was formed on January 1, 2020 when Cayman issued 10,000 shares of its 50.50 par common stock for $250,000 cash. On the date of formation, Cayman paid $70,000 cash for 4,000 units of inventory and $5,000 cash for office supplies Also, on January 1, Cayman purchased equipment for $100,000 by signing a 5-year, 5%, note payable. Interest accrues annually and the first payment is due on December 31, 2020. Each annual loan payment will consist of $20,000 principal plus the accrued interest. Keep in mind you don't necessarily have to have all of your transactions in chronological order. At this point, I suggest either recording the loan payment (principal + interest expense) or at least write yourself a reminder to record the loan payment as one of the last transactions. Don't forget that the principal and interest belong in separate areas on the statement of cash flows. You might want to record the principal payment as a separate journal entry from interest. Cayman uses the straight-line method to depreciate office equipment assuming a 10-year life and no residual value. Later in the year, Cayman purchased an additional 4,000 units of inventory on account at a cost of $75,000. Before year end, Cayman Corporation paid 75% of this amount. Sales for 2020 consisted of 5,500 units sold on account for $75 each. (When recording sales revenue, don't forget to also record cost of goods sold.) Cayman uses the FIFO method to account for inventory and cost of goods sold. Before year end, Cayman collected 80% of the accounts receivable. Cayman expects it will not collect 1% of the receivables that are still outstanding as of December 31, 2020. Cayman uses the allowance method to account for potential uncollectible accounts. No specific accounts were actually written off in 2020. Cayman employs three people. The total payroll for 2020 was $50,000, of which Cayman stll owes $3,000 at year end. Don't worry about payroll taxes for this problem. In November, Cayman purchased land for $80,000 cash. During 2020, Cayman paid building rent of $30,000 and used $4,500 worth of office supplies In December one of the initial investors sold stock back to Cayman Corporation. Cayman paid $20,000 for the treasury stock Page 5 of 6 Caynan Corporation declared and paid a $10,000 cash dividend to the dividends accounts or you can take the dividends directly out of retained earnings. If you don't need a closing entry for take the dividends directly out of retained earnings, then you dividends. The income tax rate for 2020 is 20%. Assum To calculate income tax, multiply net income before tax by the tax rate. e the income tax for the year has all been paid. Don't forget to record an actual journal entry for the income tax expense Just to be absolutely clear: Calculate income before income tax expense Calculate income tax expense Income before income tax-tax net income Prepare the journal entry for income tax expense 1. 2. 3. 4. Prepare closing journal entries for the temporary accounts. Check figures: Cash: Total Assets: Retained Earnings: Operating CF: $193,940 $492,990 $161,240 $73,940 Page 6 of 6
