On the following page is a list of transactions that occurred at Tango between Oct 1 and Dec 31 2014. Other data related to those transactions is also provided.
Prepare the following financial statements for Tango at Dec 31, 2014, in good form:
1. Income statement
2. Statement of retained earnings
3. Balance sheet
4. Statement of cash flows (direct method)
Use the answer spaces provided for each statement, or prepare them using Excel or similar spreadsheet software.
Tango Corporation
List of transactions: Oct 1 to Dec 31, 2014
Oct 1 Tango was incorporated and began business operations. Authorized to issue up to 10,000 common shares ($10 par value per share). On same date, Tango received $30,000 cash investment from parent company in exchange for 3,000 shares of common stock.
Oct 1 Borrowed $100,000 cash as a loan from WF Bank. Interest rate: 9% annually. Principal and interest are due at maturity of the loan on March 31, 2016.
Oct 1 Paid $25,000 cash to acquire a computer system (useful life 4 years, residual value $1,000).
Oct 23 Paid cash to acquire 100 units of inventory at $400 per unit.
Oct 25 Sold 62 units of inventory on account at $900 per unit. Receivable is due from customer in 30 days.
Oct 31 Paid $3,400 in wages to employees.
Nov 1 Paid $10,000 cash to acquire a patent (useful life 50 months, residual value none).
Nov 1 Paid $6,000 for an insurance policy providing coverage from Nov 1, 2014 to Nov 1, 2015.
Nov 15 Paid a cash dividend to shareholder (Fiero Corp.), $1.50 per share.
Nov 21 Purchased an investment security: 100 shares of Oliff Corporation. Paid $25 per share. Classified as trading security.
Nov 24 Received payment on account in full from sale to customer Oct 25.
Nov 30 Received cash dividend from Oliff Corporation: $2.00 per share.
Nov 30 Paid $3,600 in wages to employees.
Dec 1 Signed an agreement to lease a delivery truck, and paid first month's lease payment of $500. Terms of lease agreement:
- Lease term: 72 months (useful life of truck: 10 years)
- Required monthly lease payment is $500
- Present value of required lease payments: $3,200 (market value of truck on lease date: $8,500
- Purchase option at end of lease: NONE
- At end of lease, truck must be returned to lessor
Dec 10 Sold 10 units of inventory for $1000 per unit, customer paid cash.
Dec 21 Purchased land in exchange for $16,000 in cash.
Dec 31 Wages earned by employees for the month: $4,000 (to be paid on Jan 2, 2015).
Tango Corporation
Other data related to preparation of Dec 31, 2014 financial statements
- Market value of inventory at Dec 31: $350 per unit
- Impairment loss to be recognized on patent: $2,000
- Depreciation method on all PP&E: straight-line
- Amortization method for all intangible assets: straight-line
- Market value of Oliff Corporation shares at Dec 31: $27.50 per share