Lokalalo knows that not all their customers will pay so they take out insurance for that purpose. The insurance does not cover them for their full loss unfortunately. Lokalalo pays for the insurance in advance, which gives them 12 months of cover. Lokalalo paid $15,000 on 1 August 2020 for cover for the next 12 months. What happens in the balance sheet at 31 August 2020 and in the income statement and the statement of cash flows for the month of August 2020?
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Lokalalo knows that not all their customers will pay so they take out insurance for that purpose. The insurance does not cover them for their full loss unfortunately. Lokalalo pays for the insurance in advance, which gives them 12 months of cover. Lokalalo paid $15,000 on 1 August 2020 for cover for the next 12 months.
- What happens in the
balance sheet at 31 August 2020 and in the income statement and the statement of cash flows for the month of August 2020?
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- You are the accountant for Speedy Company and are preparing the financial statements for 2019. Near the end of 2019, Speedy loaned its president 100,000 (a material amount) because she was having financial difficulties. The note was properly recorded as a note receivable by Speedy. You are unsure of how to classify this note on the 2019 ending balance sheet and ask the president when the note is due. She replies, We never really set a due date; I might repay it in 2020 or maybe in a couple of years when I get more financially secure. It would be best to classify this note as a current asset in the usual manner because that will increase our working capital and current ratio, which will make our creditors and shareholders happy. Required: From financial reporting and ethical perspectives, what do you think of the presidents suggestion?Joy incurs the following expenses in her business. When can she deduct the expenses if she uses the accrual method of accounting? the cash method? a. Joy rents an office building for 750 a month. Because of a cash flow problem, she is unable to pay the rent for November and December 2019. On January 5, 2019, Joy pays the 2,250 rent due for November, December, and January. b. Joy borrows 60,000 on a 1-year note on October 1, 2019. To get the loan, she has to prepay 6,200 in interest. c. Joy owes employees accrued wages totaling 20,000 as of December 31, 2019. The accrued wages are paid in the regular payroll on January 5, 2020. d. Joy purchases 2,400 worth of supplies from a local vendor. The supplies are delivered on January 29, 2019. They are fully used up on December 30, 2019. Because of unusual circumstances, a bill for the supplies arrives from the vendor on January 10, 2020, and is promptly paid. e. While at a trade convention, Joy purchases some pens and paperweights to send out as holiday gifts to her clients. She charges the 700 cost to her credit card in December 2019. She pays the credit card bill in January 2020.Your client is preparing financial statements to show the bank. You know that he has incurred a refrigeration repair expense during the month, but you see no such expense on the books. When you question the client, he tells you that he has not yet paid the 1,255 bill. Your client is on the accrual basis of accounting. He does not want the refrigeration repair expense on the books as of the end of the month because he wants his profits to look good for the bank. Is your client behaving ethically by suggesting that the refrigeration repair expense not be booked until the 1,255 is paid? Are you behaving ethically if you agree to the clients request? What principle is involved here?
- Blue Company, an architectural firm, has a bookkeeper who maintains a cash receipts and disbursements journal. At the end of the year (2019), the company hires you to convert the cash receipts and disbursements into accrual basis revenues and expenses. The total cash receipts are summarized as follows. The accounts receivable from customers at the end of the year are 120,000. You note that the accounts receivable at the beginning of the year were 190,000. The cash sales included 30,000 of prepayments for services to be provided over the period January 1, 2019, through December 31, 2021. a. Compute the companys accrual basis gross income for 2019. b. Would you recommend that Blue use the cash method or the accrual method? Why? c. The company does not maintain an allowance for uncollectible accounts. Would you recommend that such an allowance be established for tax purposes? Explain.Carlos opens a dry cleaning store during the year. He invests 30,000 of his own money and borrows 60,000 from a local bank. He uses 40,000 of the loan to buy a building and the remaining 20,000 for equipment. During the first year, the store has a loss of 24,000. How much of the loss can Carlos deduct if the loan from the bank is nonrecourse? How much does Carlos have at risk at the end of the first year?Lokalalo knows that not all their customers will pay so they take out insurance for that purpose. The insurance does not cover them for their full loss unfortunately. Lokalalo pays for the insurance in advance, which gives them 12 months of cover. Lokalalo paid $15,000 on 1 August 2020 for cover for the next 12 months. What happens in the balance sheet, income statement and statement of cash flows on the date of the transaction when the $15,000 is paid?
- Lokalalo knows that not all their customers will pay so they take out insurance for that purpose. The insurance does not cover them for their full loss unfortunately. Lokalalo pays for the insurance in advance, which gives them 12 months of cover. Lokalalo paid $15,000 on 1 August 2020 for cover for the next 12 months. Paulo Jr. asks you the following questions (You do not need to provide the definition of any assets, liabilities, income or expenses. If you believe there is no effect on one financial statement, please state “no effect” instead of leaving a blank): What happens in the balance sheet at 31 August 2020 and in the income statement and the statement of cash flows for the month of August 2020?Lokalalo knows that not all their customers will pay so they take out insurance for that purpose. The insurance does not cover them for their full loss unfortunately. Lokalalo pays for the insurance in advance, which gives them 12 months of cover. Lokalalo paid $15,000 on 1 August 2020 for cover for the next 12 months. Paulo Jr. asks you the following questions (You do not need to provide the definition of any assets, liabilities, income or expenses. If you believe there is no effect on one financial statement, please state “no effect” instead of leaving a blank): What happens in the balance sheet, income statement and statement of cash flows on the date of the transaction when the $15,000 is paid?(b) Lokalalo knows that not all their customers will pay so they take out insurance for that purpose. The insurance does not cover them for their full loss unfortunately. Lokalalo pays for the insurance in advance, which gives them 12 months of cover. Lokalalo paid $15,000 on 1 August 2020 for cover for the next 12 months. Paulo Jr. asks you the following questions (You do not need to provide the definition of any assets, liabilities, income or expenses. If you believe there is no effect on one financial statement, please state “no effect” instead of leaving a blank): What happens in the balance sheet at 31 August 2020 and in the income statement and the statement of cash flows for the month of August 2020?
- Joanna has an unpaid balance of $2500 on her account as of October 9, 2020. On October 15 and October 17, 2020, she used it to buy new laptop and cellphone for $20,000 and $11,900, respectively. And on October 22, she used it again to buy a new pair of shoes worth $870. She made a payment of $15,000 on November 2, 2020 and has decided not to use it again until she paid it off. The credit card she used has an interest rate of 1.75%, what will be the total finance charges on the November 9, 2020 bill?Hugo Garcia is preparing his balance sheet and income and expense statement for the year ending December 31, 2020. He is having difficulty classifying a few items and asks for your help. Which of the transactions are assets, liabilities, income, or expense items? a. Hugo rents a house for $1,350 a month. b. Hugo bought diamond earrings for his wife and charged them using his Visa card. The earrings cost $900, but he hasn’t yet received the bill. c. Hugo borrowed $3,500 from his parents last fall, but so far, he has made no payments to them. d. Hugo makes monthly payments of $225 on an installment loan; about half of it is interest, and the balance is repayment of principal. He has 20 payments left, totaling $4,500. e. Hugo paid $3,800 in taxes during the year and is due a tax refund of $650, which he hasn’t yet received. f. Hugo invested $2,300 in a mutual fund. g. Hugo’s Aunt Lydia gave him a birthday gift of $300.Lokalalo is a company helping families redesign their homes. The balance date is 31 August. Lokalalo knows that not all their customers will pay so they take out insurance for that purpose. The insurance does not cover them for their full loss unfortunately. Lokalalo pays for the insurance in advance, which gives them 12 months of cover. Lokalalo paid $15,000 on 1 August 2020 for cover for the next 12 months. (You do not need to provide the definition of any assets, liabilities, income or expenses. If you believe there is no effect on one financial statement, please state “no effect” instead of leaving a blank): QUESTION 1: What happens in the balance sheet, income statement and statement of cash flows on the date of the transaction when the $15,000 is paid? QUESTION 2: What happens in the balance sheet at 31 August 2020 and in the income statement and the statement of cash flows for the month of August 2020?
