Safe Home provides house-sitting for people while they are away on vacation. Some of its customers pay immediately after the job is finished. Some customers ask that the business send them a bill. As of the end of the year, Safe Home has collected $1,800 from cash-paying customers. Safe Home's remaining customers owe the business $2,200. How much service revenue would Safe Home have for the year under the a. cash basis? b. accrual basis? ... a. Under the cash basis, Safe Home will record service revenue for the year in the amount of

Safe Home provides house-sitting for people while they are away on vacation. Some of its customers pay immediately after the job is finished. Some customers ask that the business send them a bill. As of the end of the year, Safe Home has collected $1,800 from cash-paying customers. Safe Home's remaining customers owe the business $2,200. How much service revenue would Safe Home have for the year under the a. cash basis? b. accrual basis? ... a. Under the cash basis, Safe Home will record service revenue for the year in the amount of

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter12: Current Liabilities

Section: Chapter Questions

Problem 1PA: Consider the following situations and determine (1) which type of liability should be recognized...

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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.
In July of this year, M. Wallace established a business called Wallace Realty. The account headings are presented below. Transactions completed during the month follow. a. Wallace deposited 24,000 in a bank account in the name of the business. b. Paid the office rent for the current month, 650, Ck. No. 1000. c. Bought office supplies for cash, 375, Ck. No. 1001. d. Bought office equipment on account from Dellos Computers, 6,300. e. Received a bill from the City Crier for advertising, 455. f. Sold services for cash, 3,944. g. Paid on account to Dellos Computers, 1,500, Ck. No. 1002. h. Received and paid the bill for utilities, 340, Ck. No. 1003. i. Paid on account to the City Crier, 455, Ck. No. 1004. j. Paid truck expenses, 435, Ck. No. 1005. k. Wallace withdrew cash for personal use, 1,500, Ck. No. 1006. Required 1. Record the transactions and the balance after each transaction. 2. Total the left side of the accounting equation (left side of the equal sign), then total the right side of the accounting equation (right side of the equal sign). If the two totals are not equal, check the addition and subtraction. If you still cannot find the error, re-analyze each transaction.
What accounting method (cash or accrual) would you recommend for the following businesses? a. A gift shop with average annual gross receipts of 900,000. b. An accounting partnership with average annual gross receipts of 12 million. c. A drywall subcontractor who works on residences and has annual gross receipts of 3 million. d. An incorporated insurance agency with average annual gross receipts of 28 million. e. A sole proprietor operating a retail clothing store with average annual gross receipts of 12 million. f. A sole proprietor operating a widget manufacturing plant with average annual gross receipts of 27 million.
On October 1, 2019, Jay Pryor established an interior decorating business, Pioneer Designs. During the month, Jay completed the following transactions related to the business: Oct. 1. Jay transferred cash from a personal bank account to an account to be used for the business, 18,000. 4.Paid rent for period of October 4 to end of month, 3,000. 10.Purchased a used truck for 23,750, paying 3,750 cash and giving a note payable for the remainder. 13.Purchased equipment on account, 10,500. 14.Purchased supplies for cash, 2,100. 15.Paid annual premiums on property and casualty insurance, 3,600. 15.Received cash for job completed, 8,950. Enter the following transactions on Page 2 of the two-column journal: 21.Paid creditor a portion of the amount owed for equipment purchased on October 13, 2,000. 24.Recorded jobs completed on account and sent invoices to customers, 14,150. 26.Received an invoice for truck expenses, to be paid in November, 700. 27.Paid utilities expense, 2,240. 27.Paid miscellaneous expenses, 1,100. Oct. 29. Received cash from customers on account, 7,600. 30.Paid wages of employees, 4,800. 31.Withdrew cash for personal use, 3,500. Instructions 1. Journalize each transaction in a two-column journal beginning on Page 1, referring to the following chart of accounts in selecting the accounts to be debited and credited. (Do not insert the account numbers in the journal at this time.) Journal entry explanations may be omitted. 2. Post the journal to a ledger of four-column accounts, inserting appropriate posting references as each item is posted. Extend the balances to the appropriate balance columns after each transaction is posted. 3. Prepare an unadjusted trial balance for Pioneer Designs as of October 31, 2019. 4. Determine the excess of revenues over expenses for October. 5. Can you think of any reason why the amount determined in (4) might not be the net income for October?
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?
Consider the following situations and determine (1) which type of liability should be recognized (specific account), and (2) how much should be recognized in the current period (year). A. A business sets up a line of credit with a supplier. The company purchases $10,000 worth of equipment on credit. Terms of purchase are 5/10, n/30. B. A customer purchases a watering hose for $25. The sales tax rate is 5%. C. Customers pay in advance for season tickets to a soccer game. There are fourteen customers, each paying $250 per season ticket. Each customer purchased two season tickets. D. A company issues 2,000 shares of its common stock with a price per share of $15.
Assume that a lawyer bills her clients $15000 on June 30, for services rendered during June. The lawyer collects $8500 of the billings during July and the remainder in August. Under the accrual basis of accounting, when would the lawyer record the revenue for the fees? A. June, $15,000; July, $0; and August, $0 B. June, $0; July, $6,500; and August, $8,500 C. June, $8,500; July, $6,500; and August, $0 D. June, $0; July, $8,500; and August, $6,500
What Would You Do? You are responsible for preparing all of the journal entries for Regional Financial Services. You have correctly prepared the following entry for financial services provided on December 15: Your boss has asked you to change the date from December 15 to January 15 so that the business’s profit, and thus taxes, would be lower. Are you allowed to do this? What is your response to your boss? How should you handle this situation?
A business has the following transactions: The business is started by receiving cash from an investor in exchange for common stock $20,000 The business purchases supplies on account $500 The business purchases furniture on account $2,000 The business renders services to various clients on account totaling $9,000 The business pays salaries $2,000 The business pays this months rent $3,000 The business pays for the supplies purchased on account. The business collects from one of its clients for services rendered earlier in the month $1,500. What is total income for the month?
Geoff and Sandy Harland own and operate Wayward Kennel and Pet Supply. Their motto is, If your pet is not becoming to you, he should be coming to us. The Harlands maintain a sales tax payable account throughout the month to account for the 6% sales tax. They use a general journal, general ledger, and accounts receivable ledger. The following sales and cash collections took place during the month of September: Sept. 2Sold a fish aquarium on account to Ken Shank, 125 plus tax of 7.50, terms n/30. Sale No. 101. 3Sold dog food on account to Nancy Truelove, 68.25 plus tax of 4.10, terms n/30. Sale No. 102. 5Sold a bird cage on account to Jean Warkentin, 43.95 plus tax of 2.64, terms n/30. Sale No. 103. 8Cash sales for the week were 2,332.45 plus tax of 139.95. 10Received cash for boarding and grooming services, 625 plus tax of 37.50. 11Jean Warkentin stopped by the store to point out a minor defect in the bird cage purchased in Sale No. 103. The Harlands offered a sales allowance of 10 plus tax on the price of the cage which satisfied Warkentin. 12Sold a cockatoo on account to Tully Shaw, 1,200 plus tax of 72, terms n/30. Sale No. 104. 14Received cash on account from Rosa Alanso, 256. 15Rosa Alanso returned merchandise, 93.28 including tax of 5.28. 15Cash sales for the week were 2,656.85 plus tax of 159.41. 16Received cash on account from Nancy Truelove, 58.25. 18Received cash for boarding and grooming services, 535 plus tax of 32.10. 19Received cash on account from Ed Cochran, 63.25. 20Sold pet supplies on account to Susan Hays, 83.33 plus tax of 5, terms n/30. Sale No. 105. 21Sold three Labrador Retriever puppies to All American Day Camp, 375 plus tax of 22.50, terms n/30. Sale No. 106. 22Cash sales for the week were 3,122.45 plus tax of 187.35. 23Received cash for boarding and grooming services, 515 plus tax of 30.90. 25Received cash on account from Ken Shank, 132.50. 26Received cash on account from Nancy Truelove, 72.35. 27Received cash on account from Joe Gloy, 273.25. 28Borrowed cash to purchase a pet limousine, 11,000. 29Cash sales for the week were 2,835.45 plus tax of 170.13. 30Received cash for boarding and grooming services, 488 plus tax of 29.28. Wayward had the following general ledger account balances as of September 1: Wayward also had the following accounts receivable ledger balances as of September 1: New customers opening accounts during September were as follows: All American Day Camp 3025 Old Mill Run Bloomington, IN 47408-1080 Tully Shaw 3315 Longview Avenue Bloomington, IN 47401-7223 Susan Hays 1424 Jackson Creek Road Nashville, IN 47448-2245 Jean Warkentin 1813 Deep Well Court Bloomington, IN 47401-5124 Ken Shank 6422 E. Bender Road Bloomington, IN 47401-7756 REQUIRED 1. Enter the transactions for the month of September in a general journal. (Begin with page 7.) 2. Post the entries to the general and subsidiary ledgers. Open new accounts for any customers who did not have a balance as of September 1. 3. Prepare a schedule of accounts receivable. 4. Compute the net sales for the month of September.
For each of the following situations write the principle, assumption, or concept that justifies or explains what occurred. A. A landscaper received a customers order and cash prepayment to install sod at a house that would not be ready for installation until March of next year. The owner should record the revenue from the customer order in March of next year, not in December of this year. B. A company divides its income statements into four quarters for the year. C. Land is purchased for $205,000 cash; the land is reported on the balance sheet of the purchaser at $205,000. D. Brandys Flower Shop is forecasting its balance sheet for the next five years. E. When preparing financials for a company, the owner makes sure that the expense transactions are kept separate from expenses of the other company that he owns. F. A company records the expenses incurred to generate the revenues reported.
If a customer owed your company $100 on the first day of the month, then purchased $200 of goods on credit on the fifth and paid you $50 on fifteenth, the customers ending balance for the month would show a (debit or credit) of how much?