Question 5

Blue Spruce Corp.s balance sheet at December 31, 2016, is presented below.

BLUE SPRUCE CORP. Balance Sheet December 31, 2016
Cash		$30,900		Accounts payable		$13,100
Inventory		30,300		Interest payable		2,500
Prepaid insurance		5,900		Bonds payable		50,000
Equipment		39,800		Common stock		26,300
				Retained earnings		$15,000
		$106,900				$106,900

During 2017, the following transactions occurred. Blue Spruce uses a perpetual inventory system.

1.		Blue Spruce paid $2,500 interest on the bonds on January 1, 2017.
2.		Blue Spruce purchased $243,800 of inventory on account.
3.		Blue Spruce sold for $490,000 cash inventory which cost $262,000. Blue Spruce also collected $29,400 sales taxes.
4.		Blue Spruce paid $232,000 on accounts payable.
5.		Blue Spruce paid $2,500 interest on the bonds on July 1, 2017.
6.		The prepaid insurance ($5,900) expired on July 31.
7.		On August 1, Blue Spruce paid $10,200 for insurance coverage from August 1, 2017, through July 31, 2018.
8.		Blue Spruce paid $16,000 sales taxes to the state.
9.		Paid other operating expenses, $88,000.
10.		Redeemed the bonds on December 31, 2017, by paying $48,400 plus $2,500 interest.
11.		Issued $90,000 of 8% bonds on December 31, 2017, at 103. The bonds pay interest every June 30 and December 31.

Adjustment data:

12.		Recorded the insurance expired from item 7.
13.		The equipment was acquired on December 31, 2016, and will be depreciated on a straight-line basis over 5 years with a $3,100 salvage value.
14.		The income tax rate is 30%. (Hint: Prepare the income statement up to income before taxes and multiply by 30% to compute the amount.)

BLUE SPRUCE CORP. Income Statement