3. Use the following information to prepare a 2017 Income Statement and Statemen

Question

3. Use the following information to prepare a 2017 Income Statement and Statement of Cash Flows, for MEJC, Inc. (assume MEJC uses the calendar year for financial reporting purposes). Sold $200,000 of merchandise during 2017. Beginning accounts receivable was $40,000 and end of year accounts receivable was $60,000. MEJC purchased $100,000 of merchandise inventory during 2017 and had merchandise inventory on hand of $50,000 and $30,000, respectively, at the beginning and end of 2017. Furthermore, MEIC 's beginning and end of year accounts payable was $25,000 and $32,000, respectively a. b. c. MEJC used the following property, plant, and equipment during 2017 Date Purchased Salvage Useful Value Life Cost Land Buikding 10/15/2010 Equipment 11/1/2010 Equipment 7/12012 10/15/2010 100,000 SNA Indefinite 20,000 30 years 5,000 9 years 2,000 8 years 200,000 50,000 10,000 d. MEJC paid $16,000 in salaries during 2017. MEJC reported salaries payable of $2,000 and $1,500 on December 31, 2016 and 2017, respectively. MEJC paid $2,400 on November 1, 2016 for a two year property insurance policy. MEC borrowed $12,000 at 6% per year from the bank on October 1, 2015, The loan principal was repaid in full on September 30, 2017. Interest was paid at the end of each month over the life of the loan. e. f. g. MEJC incurred and paid for $14,000 in "other selling, general, and administrative h. MEC's income tax rate is 30% for 2017. In addition, MEC reported income taxes i. MEJC's Board of Directors declared a $5,000 dividend on November 1, 2017. expenses during 2017. payable of $5,000 and $6,000, respectively, on December 31, 2016 and 2017. Furthermore, MEIC reported $2,000 and $3,000 in dividends payable, respectively, on December 31, 2016 and 2017. MEJC's December 31, 2016 cash balance was $16,000. j.

Explanation / Answer

MEJC, INC Income Statement For the year ended December 2017 Sales $200,000 Less: Cost of Goods Sold $120,000 Gross Profit $80,000 Operating Expenses Salaries Expense $16,500 Insurance Expense $1,200 Interest on Loan $540 Depreciation $12,000 Other selling, general and administrative expenses $14,000 Total Operating Expenses $44,240 Net Income before taxes $35,760 Taxes @ 30% $10,728 Net Income $25,032 Dividend $5,000 Addition to Retained earnings $20,032 Cost of Goods Sold - Opening Inventory + Purchases - Closing Inventory $50000+$100000-$30000 120000 Calculation of Depreciation Building (200000-20000)/30 6000 Equipment (50000-5000)/9 5000 Equipment (10000-2000)/8 1000 12000 Salary Expense for the current year - 16000+2000-1500 16500 Interest on Loan - 12000*6%*9/12 540 MEJC, INC Cash flow Statement For the year ended December 2017 Cash flows from operating activities Profit before taxation $35,760 Adjustments for: Depreciation $12,000 Working capital changes: Increase in Accounts Receivable ($20,000) Decrease in inventories $20,000 Decrease in Prepaid Rent $1,200 Increase in Accounts Payable $7,000 Decrease in Salaries Payable $500 Increase in Income Taxes Payable $1,000 Taxes ($10,728) Cash generated from operations Net cash from operating activities $46,732 Cash flows from investing activities Net cash used in investing activities 0 Cash flows from financing activities Payment of Loan ($12,000) Dividend Paid ($4,000) Net cash used in financing activities ($16,000) Net increase in cash and cash equivalents 30732 Cash and cash equivalents at beginning of period $16,000 Cash and cash equivalents at end of period 46732 Dividend paid (2000+5000)-3000 4000

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