Reference no: EM132668043
Problem - Road Runner Corporation operated a small courier business under ideal conditions. On January 1, 2021, Road Runner began operations by acquiring a delivery truck. In order to purchase the truck, Road Runner issued common shares. The delivery truck had a useful life of nine years, at the end of which time it would be worthless. The economy's interest rate was 3%.
At the time of purchase, Road Runner anticipated the cash ?ows from the delivery truck would be $4,100 in a good year, and only $850 in a bad year. In each year, Road Runner estimated a 35% chance of a good year, and a 65% chance of a bad year. The events of any one year had no impact on the probability of a good or bad year in the future.
Road Runner's customers paid on December 31 of each year. Road Runner did not spend any of the cash received; instead, Road Runner saved the cash in a bank account that paid interest of 3% at the end of each year (not including the year it was deposited).
Required -
a) Assume that 2021 was a good year. Prepare an income statement and balance sheet for Road Runner Corporation for the year ended December 31, 2021.
b) Continue assuming that 2021 was a good year, now assume that 2022 was a bad year. Prepare an income statement and balance sheet for Road Runner Corporation for the year ended December 31, 2022.
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