RutgersFriends Corporation (RFC) started business on December 10, 2011 by issuing 30 shares of $100 stock for $3,000. RFC decided to cook and sell delicious desserts. To do that, on December 15, 2011, RFC bought a refrigerator for $1,000 with a five-year life span. Each dessert uses 2 oz. of dough. It costs $1.00 of labor to produce one dessert. SG&A expenses are $800 a year. RFC sells each dessert for $4.50. On December 15, 2011, RFC bought 1,500 oz. of dough. Each oz. of dough cost the company $0.35. For 900 oz. the company paid immediately, and for the remaining 600 oz., the company paid during the following year. During the first year, January 1, 2012 – December 31, 2012, RFC produced 700 desserts. RFC was able to sell 680 desserts during the first year. The payment for 650 desserts was received immediately, and for 30 desserts during the following year. During the second year, January 1, 2013 – December 31, 2013, RFC bought 1,400 oz. of dough. Each ounce of dough cost the company $0.35. The company paid immediately for all dough during that year. During the second year, RFC produced 710 desserts. RFC was able to sell 700 desserts during that year. The payment for 690 desserts was received immediately, and for 10 desserts during the following year. RFC uses the straight-line depreciation method. The corporate tax rate is 34%. Taxes are paid during the following fiscal year. At the end of each year, investors decided to reinvest 50% of earnings and use the rest to pay a cash dividend. Prepare the balance sheet for RFC on December 31, 2011; December 31, 2012; and December 31, 2013. Prepare the income statement for RFC for the first and the second years. Prepare the statement of cash flow for RFC for the first and second years.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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RutgersFriends Corporation (RFC) started business on December 10, 2011 by issuing 30 shares of $100 stock for $3,000. RFC decided to cook and sell delicious desserts. To do that, on December 15, 2011, RFC bought a refrigerator for $1,000 with a five-year life span. Each dessert uses 2 oz. of dough. It costs $1.00 of labor to produce one dessert. SG&A expenses are $800 a year. RFC sells each dessert for $4.50.

On December 15, 2011, RFC bought 1,500 oz. of dough. Each oz. of dough cost the company $0.35. For 900 oz. the company paid immediately, and for the remaining 600 oz., the company paid during the following year.
During the first year, January 1, 2012 – December 31, 2012, RFC produced 700 desserts.

RFC was able to sell 680 desserts during the first year. The payment for 650 desserts was received immediately, and for 30 desserts during the following year.

During the second year, January 1, 2013 – December 31, 2013, RFC bought 1,400 oz. of dough. Each ounce of dough cost the company $0.35. The company paid immediately for all dough during that year.

During the second year, RFC produced 710 desserts. RFC was able to sell 700 desserts during that year. The payment for 690 desserts was received immediately, and for 10 desserts during the following year.

RFC uses the straight-line depreciation method. The corporate tax rate is 34%. Taxes are paid during the following fiscal year. At the end of each year, investors decided to reinvest 50% of earnings and use the rest to pay a cash dividend.

Prepare the balance sheet for RFC on December 31, 2011; December 31, 2012; and December 31, 2013.

Prepare the income statement for RFC for the first and the second years.

Prepare the statement of cash flow for RFC for the first and second years.

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